Pre-paid Credit Cards

Prepaid credit cards are similar in concept to their cousin, the debit card. A prepaid credit card is linked to a bank account, which defines how much one can spend on the card. Once the bank account is empty, the card is useless. For this reason, almost anyone can get approved for a prepaid credit card, and there is no fear of going into debt and getting crushed by high interest rates. A prepaid card is the safest way to go for those with damaged or no credit who still need a credit card to get by on day to day transactions.

There are a few downsides to getting a prepaid card, but for many the advantages greatly outweigh the disadvantages. The first issue to consider is that a prepaid credit card is often associated with fees: fees to open the account, fees to maintain the account annually, and fees to put money in the account. These can add up, so do your math diligently when considering a prepaid credit card. Another thing to consider is what you are planning to use the card for. While prepaid cards are an excellent option to get by in a world of credit when a standard card is not available, there are some limits to its use. Most notably, any service that bills by the month or other interval will usually not accept a prepaid credit card as an acceptable form of payment. The reason for this is simple: if there is no money in the account, then the business has no way to extract their due payment. It’s obviously no hair off the cardholder’s back, but puts the business in a bad position.

If you are considering a prepaid card but are put off by these common aspects of them, then a secured credit card may be more up your alley. These are essentially standard credit cards backed by collateral that the cardholder gives the bank when opening the account. They are still relatively easy to get approved for, but are more widely accepted by businesses and generally have less or no fees associated with them. Also, with a secured credit card your credit limit should be lower than your total assets in a prepaid account, meaning essentially that you will be building a little savings and won’t always be clearing your account to $0.

However, if you don’t want to worry about spending limits and collateral, then a prepaid card is your best option. They are almost impossible to use improperly, and since they are still a credit card, will help build your credit. While not the most financially efficient option out there, for some it will provide just the right amount of restrictions and freedoms they need to get by in their day to day lives. Once sufficient credit is built and a pattern of responsible use is established, more options will open up for individual, and he or she may find it easier to get accepted for other types of cards.