How Prepaid Credit Cards Work

Those who have been denied a credit card due to either poor or lack of credit history may find that a prepaid credit card provides many benefits. There are times in life when it pays to have a credit card, such as when renting hotels, cars or traveling. Those without a credit card may find it is extremely difficult to make these transactions without the use of a card, making a prepaid credit card invaluable. If you’ve wondered how prepaid credit cards work you’re not alone. During times of economic downturn, it can be increasingly difficult to get approved for credit. Prepaid credit cards offer viable solutions for those in need.

There is a difference between a secured credit card and a prepaid debit card and this must be understood. A secured credit card is a credit card in which you fund the card, however, the card acts like a credit card and your information is routinely reported to the three major credit bureaus. Prepaid credit cards are more like debit cards and don’t require credit checks, nor do they report to the three major credit bureaus. Other differences include how the prepaid credit card works as well as the types of fees associated with the card.

Prepaid credit cards don’t have the same types of protection that credit cards have and your transactions aren’t equally protected. Major credit card companies will more readily issue a full refund due to claims of fraud, but you’ll find it is more difficult to claim a refund with a prepaid credit card purchase. Additionally, prepaid credit cards make their money from associated fees.

Prepaid credit cards have a number of associated fees and these include activation fees, purchase fees, fees for using ATMs, fees for calling customer service, monthly transaction fees and even fees for paying your bills. Before deciding that a prepaid credit card is the best solution for your financial needs, take the time to determine what fees are associated with the card and make certain you can afford to pay them. On the other hand, however, you won’t need to worry about some of the costs associated with traditional credit cards such as interest rates, finance charges or fees for making late payments on your bill. As with prepaid credit cards, you fund the account with the money you need, then your purchases and fees are deducted from your balance. You continually add funds to your account to keep your prepaid credit card in the plus. Prepaid credit and debit cards are very similar to gift cards, only they have associated fees.

Students, teens and even children along with adults with poor credit opt for these types of cards. As you don’t need to worry about credit checks or ensuring you have a good credit history in order to be approved. As your credit history isn’t a factor in your approval, it’s important to understand that a prepaid credit card won’t help you rebuild or repair your credit as well. Those who are interested in rebuilding or repairing credit will find that a secured credit card is a better option.

The benefits of using prepaid credit cards are vast, however, they are only suitable for those who can’t get a debit or secured credit card due to the amount of fees. Those who use prepaid credit cards will find they can use the card to pay their bills online, can even use the card for direct deposit, and to make various purchases. As there are no interest charges and no monthly payments, the consumer can keep track of their fees according to the terms of their contract. What may be the greatest advantage of prepaid credit cards is that they are only funded by the money you put on the card. You don’t need to worry about going into debt because you have extended your line of credit as there isn’t any. One area where consumers should be extremely careful is when using prepaid debit and credit cards to make purchases for gas. If you use your prepaid credit card for buying gas, then either take money out of an ATM machine or pay the attendant inside the station. Also, make certain that there won’t be any additional holds added to your card if making auto or hotel rentals and reservations. Contact the business ahead of time and ask their policies regarding how prepaid credit cards work for their establishments.

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