Understanding Prepaid Credit Cards

Prepaid credit cards are some of the most popular types of credit cards available. Unlike other cards that require approval or are secured, prepaid credit cards are popular with those individuals who cannot qualify for a regular credit card or for those who can qualify for a regular credit card but do not wish to deal with interest rates, due dates, fees and penalties associated with a regular credit card.

Unlike regular credit cards or other types of cards for that matter, prepaid credit cards do not offer you any line of credit. Using a prepaid credit card requires that you deposit money onto the card, meaning that you must have money in your bank account. It is this money that you spend when you use your prepaid credit card. What this means is that the amount of money you spend using the card is automatically deducted from your account.

How you manage your prepaid credit card is similar to managing your savings or checking account.

Unlike other types of credit cards, use of prepaid credit cards literally eliminates such issues as interest, late payments, penalties and finance charges since you can only spend what is in your account.

Unlike other types of credit cards however, prepaid credit cards are some of the most expensive credit cards you can find. There is usually a one-off activation fee that can be as high as $10 or more. There can also be monthly transaction fees, which can also be as high as $10 or more every month. You may also be charged a fee whenever you reload the card, which can be up to $5 or more. There are also other charges levied for the checking balance at an ATM machine and whenever you contact customer service. All these fees and charges are automatically deducted from your credit card account balance.

Apart from high charges that typical prepaid credit cards attract, it is also very important that you consider whether or not it is the right type of credit card for you. This is because unlike other types of credit cards, use of prepaid credit cards is not reported to credit bureaus.

Using this type of credit card does not help you in establishing or repairing your credit history.

If you wish to either establish or improve your credit score consider getting a secured credit card which will typically help.

Prepaid credit cards are perfect for those who cannot qualify for a regular credit card or who have no credit history. In any case, applying and obtaining a prepaid credit card is very easy since you do not have to have credit history. Prepaid credit cards are often suitable for college students since their parents can easily reload the cards from wherever they are.

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