Prepaid credit cards or prepaid debit cards are growing in popularity in the market. Many people who cannot qualify for a regular credit card because of bad credit or lack of credit history can easily go prepaid. Many merchants who accept credit card payment also recognize prepaid credit cards. Like any regular credit card, prepaid cards can be used to pay bills or make purchases online and at brick-and-mortar stores.
What makes prepaid credit cards different? The biggest difference is that prepaid cardholders do not enjoy a credit line. As a prepaid cardholder, you cannot make advanced purchases and pay at a later time. Bills that are charged to a prepaid card are instantly paid out using the available fund in the debit account. What happens when the balance runs out?
In order to use the card for new transactions, the prepaid cardholder must first reload or deposit more funds to the account. While some people may see the absence of a credit line as a restriction, others may see it as protection against the risk of debt build up. Indeed, not having a credit line discourages unplanned purchases or unplanned spending.
There are different ways to reload or add more funds to a debit account. Some issuers require an active savings or checking account but others do not. If your prepaid debit card is linked to a bank account, you can directly transfer funds from your savings account to your prepaid card. This method of reloading is usually free of charge so it’s a great way to manage a prepaid account and avoid prepaid card fees.
Another way to add funds to an account is through prepaid credit card reloading stations. However, this option is usually more costly because you will be charged with a fee each time you reload. Despite the fees, some people choose this reloading option and keep their prepaid debit account separate from their bank accounts for safety reasons.
Before acquiring a prepaid debit card, check all the fees associated with the card first, including the set-up fee, activation fee and reloading fees. Of course, you want to look for a prepaid credit card with a minimal set of fees.
Watch out for prepaid credit cards that offer various types of rewards. The opportunity to earn rewards just like a regular reward credit cardholder can be tempting but the costs can prove to be a burden. These cards may come with expensive fees such as the yearly and monthly maintenance fee.
Avoid charging purchases that exceed your available balance. While borrowing against credit is not possible, some transactions may still go through and you may be charged with an overdraft penalty the next time you reload your account. This usually happens when there is just a small difference between the balance and the price of the purchase. Last but not least, choose a prepaid credit card that will report your account activities to the three major credit bureaus as this is the only way you can use the card to establish credit or rebuild bad credit.
About the Author:
Tara Tiemann is the credit specialist for Go-Prepaid. Which is a resource site for people who want to live debt free! If you are on a budget, using a secured credit cards and Bad Credit Unsecured Cards can save you big money!