What are prepaid credit cards?

There are many people whose credit card applications are rejected as they have damaged credit. If you are being denied a credit card, you can try out prepaid credit cards. They are similar to a debit card that is linked to a savings account.

In order to open a prepaid credit card account, you need to open a savings or a checking account. Once you have deposited money in your savings account, you will be issued a prepaid credit card. You are required to pay a fee to activate your account. The amount you have to shell out as fee usually varies from one card issuer to another. Generally, the amount isn’t very high and it can be USD$5 or USD$10. In addition to the fees you are paying for opening an account, you are also required to make additional payments every time you refill your prepaid credit cards.

What are the benefits and drawbacks of using prepaid credit cards?

• Prepaid credit cards are useful and there are many benefits of using these cards. The advantages are many. You can just fill your prepaid cards with enough fast cash and use it till the time you don’t exhaust the cash loaded.
• You don’t have to worry about interest charges. You don’t have to worry about not exceeding your credit limits. The reason is you can use the amount that you have filled your account with. So, question of crossing your credit limits doesn’t arise.
• There are many parents who prefer to give prepaid credit cards to their kids so that they learn to manage their money better.
• Another important aspect of using these credit cards is that you are never in debt. It is not that you are buying an item now and paying it later, you shop around depending on the availability of your funds.
• There are a couple of prepaid credit card issuers who offer zero liability protection. It means that even if you lose your prepaid credit card, your fund is safe.

Drawbacks

• Credit cards may help you in booking tickets online. You can also use credit cards to make hotel bookings or use them when you go on a holiday etc. Your prepaid credit card doesn’t offer you such flexibility. There is another drawback in using prepaid credit cards.
• If you find out that you have made a mistake in making your payments. For instance you may have paid more or you may have paid less than what you were actually supposed to. Under such circumstances, since you have already made your payments, it may take some time to settle disputes related to payments.