subject: How Do Prepaid Cards Work [print this page] What's the Difference? What's the Difference?
With traditional credit cards, you apply for credit and you are approved or denied based on your credit. If approved, you are issued a credit card with a specified line of credit. If you have damaged credit or if you have no credit, you may be denied by traditional banks. Prepaid credit cards eliminate the strict credit rating requirements and, in some cases, they don't even do a credit check or employment verification. Since your line of credit is secured by the security deposit, they are covered in case you default on the payments. This is a way for people to rebuild their credit or establish credit for the first time.
Who Is Eligible?
Because these cards are secured by your deposit, anyone is eligible. There may be age restrictions (18 or 21), or you may have to be U.S. citizen, but these instant credit approval cards have a high approval rate because the restrictions are minimal.
Where Can I use them?
Prepaid credit cards can be used just like traditional credit cards, anywhere where VISA and MasterCard is accepted. You can use them online and offline. You can pay bills online and over the phone, and withdraw cash from ATM machines.
What Are the Advantages?
1. You are able to rebuild or build your credit rating.
2. Eliminate the need of writing checks, money orders and going to the post office.
3. Avoid late payments.
4. You can have a credit card just like your family and friends.
5. Have your paycheck deposited directly onto your card.
What Are the Disadvantages?
1. Interest rates are often higher.
2. You may have to pay a monthly "maintenance" fee.
3. You may not be able to rent a car (some car rental agencies do not accept pre-paid credit cards).
4. You have to put down a security deposit before you can use the card.
5. Over the limit and late fees are usually higher.
Whether you are rebuilding your credit or establishing credit, it is important that you make your payments on time and that you do not go over your credit limit. With late payment fees in the $30.00 plus range, it will quickly add up.
Prepaid debit cards were developed to help you control your spending habits as well as develop responsible spending. It is easy to say, "I'll pay it next month," and get caught up in the late payment cycle and before you know it, you are 2 to 3 months behind and the fees continue to add up. One way to prevent this is to know ahead of time when your payment is due and try to pay it in advance. By making timely payments consistently, most companies will increase your credit limit and/or return your deposit with interest.
