What is the point of prepaid credit cards

What are prepaid credit cards and how are they used? Prepaid cards are a form of a credit card that works much like a debit card. You are going to set the limit on the card by sending money to the account. When you use the money in the account you can’t use the card again until you reload it.

Why use prepaid credit cards? Well there are several reasons you might want to use a prepaid card. So let’s outline them for you.

If you have bad credit history
If you want to keep a better accounting of what you spend and where
Trying to improve your credit history
Giving the card to a teenager
Offering more responsibility with no interest rates

As you can see there are several reasons that could help you choose the prepaid card over that of some other card. First if you have bad credit history you can use the card as a means of improving credit as well as having a credit card for purchases. You see companies like hotels, airlines, and car rentals will not allow you to rent without a card. Having prepaid credit cards can help you get the payment method you need. Plus you get to help your credit history by making it better. If you have bad credit, card companies with regular credit cards may not allow you to get a line of credit.

For teenagers it is a way to teach them responsibility in how to use a credit card and what can happen if they use it too much. Most of the time we send out our children to do errands, but without a method of proper payment they may be unsuccessful in those errands.

With a prepaid card you don’t have an interest rate. Instead there is a set up fee, a reload fee, and sometimes a transaction fee. This is usually a couple of dollars per fee. So a usage fee may be one dollar for transaction, a reload could be 4 dollars, and the set up is anywhere from 9 to 25 dollars depending on the company you have chosen.

The good news is after a little time you are able to get a really good credit again. It doesn’t take that long for a prepaid card to help you reinstate your credit. In fact it could take three months depending on where your scores are.

By offering you an alternative to regular credit cards the prepaid cards will allow for more control. We mentioned this above, but let’s explain a little further. You will set the amount on the card. You also can’t use it when there is no money. You are the one to reload it. This means you get to see exactly where you spent money, when, and you can make sure that you don’t over spend your income. By having more control you can feel more secure in your purchases and know that when you overspend and use the card up you are stopped until you can reload.

Back To Financial News May 2008

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