We Know: How Prepaid Credit Cards Work

What is a prepaid credit card?

Prepaid cards are  used in the same way as credit cards, except the user must open an account and deposit money first. The cards usually carry a MasterCard or Visa logo. The amount of money in the account is equal to the amount of money on the prepaid credit card. Prepaid cards are accepted anywhere traditional credit cards are accepted.

Who needs a prepaid credit card?

For people who have poor credit, and therefore no credit cards, there are times when paying cash just will not do, such as renting a car or putting a deposit on a hotel room. Without a credit card, they would have to pay very large cash deposit. It makes sense in these cases to have a prepaid card that will allow a reasonable hold to be placed.

Using a prepaid credit card will help you to re-establish your credit history, and serves as an emergency fund.

What are some advantages of prepaid credit cards?

For people who cannot obtain a regular credit card, prepaid credit cards have some advantages.

  • Prepaid credit cards are easy to obtain. You can purchase one online or at many local retail stores, often with no credit check or income requirements.
  • Since you are using your own money, there are no interest charges.
  • You cannot get into debt using a prepaid credit card.
  • A prepaid MasterCard or VISA can be used just about anywhere.

What are some disadvantages of prepaid credit cards?

If you have good to fair credit, try applying for a regular credit card before considering a prepaid credit card. The disadvantages are:

  • Though there is no interest to pay, there are usage, or initiation fees that tend to be expensive. You can expect to pay fro $5.00 to $50.00 when you open the account, plus at least $5.00 every time you load the account.
  • You need to have cash up front, which can defeat the purpose of having a credit card.
  • Some prepaid credit cards cannot be used to make automatically recurring payments.

What should I do before I get a prepaid credit card?

Remember to compare several offers and select the prepaid credit card that most suits your needs at the lowest cost possible.

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