Benefits And Disadvantages Of Prepaid Credit Cards
Credit cards are nice to have in the event of an emergency
, but not everyone can qualify for this type of credit. If you find yourself in a financial pinch and unable to qualify for a traditional loan or credit card, there are other options available.
Prepaid credit cards can be used in the same places that standard credit cards are used, and they are issued to many individual with less than stellar credit. While there are many advantages to these prepaid cards, there are some significant disadvantages as well. This article will cover the pros and cons of prepaid cards to help you determine whether this option is the best one for you.
What is a Prepaid Credit Card?
Prepaid credit cards use funds deposited into an account to offset the charges put on the credit card. While the card looks and acts like a standard credit card, it is more like a debit card in the sense that it can only be used when there are funds in the account to cover purchases.
Banks will offer these types of credit cards to customers who do not have positive credit histories because there is very little risk the bank assumes when issuing prepaid cards. The card can be used until the money in the account is gone, and then more money must be added before the card can be used again.
What are the Pros?
There are a number of benefits to prepaid credit cards, including:
Customers with less than stellar credit can usually obtain a prepaid card.
When you use a prepaid credit card, it helps build your credit history and can improve your overall credit score.
Once your credit report is cleaned up, your bank may be willing to extend credit on your account.
Prepaid cards can be used like regular credit cards to book airline and hotel reservations.
There are no interest charges to accrue on a prepaid card.
If you are in a situation where you cannot be approved for a standard credit card, a prepaid card may be a good solution. You can use your card the same way you would use a standard credit card in many situations, allowing you flexibility in making reservations and purchases. This is especially true if you travel frequently and need to make reservations with a credit card.
What are the Cons?
While prepaid credit cards offer a number of benefits, there are some drawbacks to using these cards as well. These disadvantages might include:
Most prepaid credit cards require a fee to set up the service.
Many banks also charge a fee when you deposit additional funds into your account.
Some companies that offer monthly subscriptions won't accept prepaid cards for their services.
Prepaid cards have limits as too how much you can load and spend at a single time.
It is important to track your account balance carefully to avoid the embarrassment of having your credit card rejected at a merchant.
While there are some distinct drawbacks to prepaid credit cards, those who cannot qualify for other types of credit cards may find the benefits outweigh the risk. If you have not been approved for a standard credit card, perhaps a prepaid card is the right solution for your needs.
by: Janet Gaither
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