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Can You Really Stay Away from Bad Credit with Prepaid Credit Cards?

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Published: 12Nov2009
Word count: 510
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As the name suggests, prepaid credit cards are paid in advance. Instead of purchasing in advance and paying at a later time, a prepaid cardholder is expected to pay first before charging purchases to his/her card.

Today, prepaid credit or debit cards are increasing in popularity. More and more people prefer to get a debit card than a regular credit card to keep away from bad debt. But can you really stay away from bad credit with prepaid debit cards?

Who Needs A Prepaid Card?

Prepaid cards are wonderful tools for teenagers or students who need a cashless mode of payment. Parents can also send monthly allowances for their teens using a prepaid account. These special cards are great for people who cannot qualify for standard credit cards because of a bad credit history. More importantly, prepaid cards can be used to rebuild damaged credit.

Are you frequently on trips abroad or do you often make purchases online? If yes, a prepaid debit card is a safe way to shop since it is not connected to your bank savings account or credit card account. In case of theft of lost, you can report it to your issuer to have your existing funds frozen.

Advantages of Using Prepaid Cards

Prepaid debit cards are advantageous in many ways. These include:

Convenience. You can shop around without carrying cash. Whether you are on travel or simply strolling at the mall, you can simply bring your prepaid card in your wallet.

Cost efficient. Because it's prepaid, you don't have to worry about extra fees such as interest rate, late penalty charges or over-the-limit costs.

Safe and quicker money transfers. Prepaid cards are great for making quick and safer money transfers. Once the money has been sent, the cash can easily be withdrawn from an ATM.

Control your spending. Unlike a credit card, you can't make advanced purchases and promise to pay it a later date. If you don't have cash in your account, you need to delay the purchase. That gives you more time to think and consider whether or not you really need it.

Build or rebuild your credit history. Choose an issuer that will report your payments to the three major credit bureaus (Experian, Equifax, TransUnion). Remember that not all issuers have credit reporting provision. In order for you to build or rebuild your credit history, you need to make sure that your payments will be promptly reported.

Costs of a Prepaid Card

Although there is no interest rate or late penalty charges, there are some fees that you need to be aware of. There is an annual fee to keep the account active. There is also a small charge for every transaction made. To save money, plan your purchases ahead of time so you can pay at the counter at once.

Before signing up for a prepaid debit card, spend time reading and understanding the fine print, as you would a regular credit card. You need to be aware of your privileges as well as your limitations as a cardholder.

Tara Tiemann is a credit analyst of Go-prepaid.com and has been a resource site for people who want to live debt free! If your on a budget using prepaid debit card and prepaid cell phone services can save you big money!

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