Category Archives: Credit Cards

Are Prepaid Debit Cards Good For You?

The popularity of prepaid debit cards has been rising in the last several years. You can qualify for a prepaid debit card regardless of your credit history. Since prepaid debit cards are co-branded with MasterCard or Visa, you can use these cards to pay bills almost anywhere regular credit card payments are accepted. Many people use these cards overseas for convenience.

Whether prepaid cards are good or bad for you really depend on how you use them and how responsible you are. Prepaid debit cards make sense for some people who are trying to control their spending because they can’t spend more money than what is loaded on their card. This way you wouldn’t carry a credit balance, have any overdraft fees to pay, or be in debt. Thus, if you think you have trouble handing credit, a prepaid debit card may be an option you want to consider.

Prepaid debit cards also have a plethora of fees, including reload, account maintenance, and activation fees. Despite these fees, some people still find it better to use a prepaid debit card as opposed to a regular credit card. This is because if you are bad in handling credit, these fees may be lower than the amount of interest you would have to pay with a credit card if you carry a balance at the end of the month. However, in recent years, some card companies started offering prepaid debit cards with significantly fewer and lower fees. Some cards will even waive certain fees if you set up direct deposit. Make sure you understand what all the fees are before signing for any card. As with any financial product, it is important to shop around before you make any decision. Compare the fees and features of different prepaid cards to ensure that you get the card that is best suited for you.

Do prepaid debit cards build credit?

Using prepaid debit cards will have no impact on your credit score and you will not be able to build a credit history. This is because when you use a prepaid debit card, you are not borrowing or repaying money, and thus, the major credit bureaus often do not look at your prepaid debit card behavior when determining your credit score. For someone who is trying to increase their credit score, consider applying to a prepaid credit card as opposed to a prepaid debit card.

Who uses prepaid debit cards?

You might sign up for a prepaid debit card if your bank doesn’t carry MasterCard or Visa branded cards. Parents can also load money onto the card for their children to teach them good money management skills. College students may also find that using prepaid debit cards is convenient in terms of helping them easily pay for books, food, and other expenses.

Do Prepaid Cards Build Credit?

One of the differences between prepaid debit cards and prepaid credit cards is their impact on your credit. While many prepaid cards do not help you build your credit, there are some that do.

You can qualify for a prepaid debit card regardless of your credit history. However, its activity has no impact on your credit history because, with a prepaid debit card, you are spending your own money that you have added to the card. This shows nothing about your borrowing or repaying behavior, and thus has no effect on your credit.

If you are trying to rebuild your credit, you may want to consider a prepaid credit card, also known as a secured credit card. Secured cards function like traditional credit cards. You use the card similar to any other credit card up to your credit limit. At the end of each monthly cycle, you will receive a statement with the total amount you owe, the minimum payment, and the due date. Similar to traditional credit cards, the rules on building good credit applies. For example, making your payments on time will help your credit and likewise, late payments will hurt your credit.

Secured credit cards are similar to prepaid debit cards in that you have to make a deposit first in order to use the card. Some cards will require you to make a cash deposit from between $200 to $5000 before you can use the card. However, unlike a prepaid debit card where the funds get automatically deducted whenever you make a purchase, with a secured card, you have to pay off your balance from a separate account with funds that were not part of your initial deposit. Your initial deposit only acts as collateral in the event that you fail to pay off your credit card bill.

Since secured cards require a security deposit, many people can qualify for a secured credit card even if they do not qualify for a traditional credit card. If you have bad credit and are getting rejected for new credit, you might want to research and apply for secured credit cards to build your credit.

Why Apply for Prepaid Cards

It has become inconvenient to not have a credit card in certain situations. For example, car rentals, hotel reservations, and airline bookings require a credit card. One reason why people apply for prepaid cards is because they do not qualify for regular credit cards due to having bad credit. Prepaid cards are accepted wherever credit cards are accepted.

Typically you pay a fee to set up a prepaid card account and you deposit funds onto the card, similar to how you would fund a gift card. As you use your prepaid card, the amount of your purchases gets deducted from your card, reducing the balance. For example, if you deposit $500 onto your prepaid credit card and you spent $100, then you only have $400 left to spend. Once you spend the entire $400, you have to reload more money onto your prepaid card before you can use it again.

Managing your prepaid debit card is similar to managing a checking or savings account. You don’t have to worry about interest, finance charges, or late payments. You don’t have to remember any due dates, as your purchases get automatically deducted from your card balance.

These cards allow a person the convenience of a credit card without going into debt because you can never spend more money than you have loaded into the card. They are a nice alternative for people who have bad credit and can’t qualify for credit lines from credit card companies.

However, prepaid cards usually come with a lot of fees. Besides the activation fee, you may have to pay reload and account maintenance fees. Compare these fees to how much interest you’d have to pay with a regular credit card if you carry a balance at the end of the month. Despite their fees, some people still prefer to use a prepaid debit card over a traditional credit card. It’s important to read through all the prepaid card terms and know the fees you are paying before activating an account.

Read to see if prepaid cards are right for you.