CardRates.com Guide: Prepaid Cards
If you’re one of the millions of Americans unable to qualify for a conventional credit card, a prepaid credit card may make sense for you. Prepaid credit cards are also called reloadable credit cards because you can add money to the account the card draws from any time you’d like. In that regard, they are somewhat like a debit card.
From the perspective of using the card, a prepaid credit card does work almost the same as a traditional credit card. Any merchant or service provider that accepts a credit card will likely accept this form of payment also. But the fact is these cards actually have more in common with debit cards than with credit cards.
A prepaid credit card requires a deposit account from which the card will draw money. In this way, they are similar to a secured credit card. A big difference, however, is the usage activity does not get reported to credit rating agencies, and therefore will not help build your credit score.
Payments aren’t required for these prepaid cards — rather, you replenish funds through voluntarily “funding” the account. You can do this via a bank account transfer, PayPal account, direct deposit or even cash at many retail stores.
For people without a checking account, prepaid credit cards can work as a way to manage their finances. It’s simply not practical and not very safe to deal exclusively in cash transactions. By keeping their cash in a prepaid credit card account, they have access to it any time they want via ATM machines. They can also pay bills and engage in other activities that require a credit card.
One of the big deterrents to using prepaid credit cards is the number of fees associated with some of them. Watch out for cards that charge excessive fees, such as ATM transaction fees, bill payment fees, reloading fees, inactivity fees, statement fees and more. Depending on the card you choose, this can turn into a very expensive alternative to banking.
On the other hand, there are prepaid credit cards that don’t charge as many fees and have a large network of free ATMs. Do your research and select a card that will fit your usage habits without charging you too much.
Pick the right card and you’ll have a great way to build good spending habits and decide whether you want to try a more traditional form of credit.
Photo source: frankdeardurff.com
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