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Everything You Need To Know About Prepaid Credit Cards
For those with bad credit or no credit. Prepaid credit cards make life easier for those who just want to build a little credit without the risk of digging themselves into the depths of debt. The main benefit ?....They keep you from over-spending !
What exactly Is a Prepaid Credit Card?
In a world where plastic buys just about everything and anything, consumers may find that the importance of owning at least one credit card cannot be understated. You need them to rent a car, you need them to reserve a hotel room, you even need them to purchase anything online or over the phone.
Prepaid credit cards may not be true, pure, traditional credit cards, but they look and operate just like them. This clever form of funding offers a number of plusses that are especially advantageous for those who do not qualify for a traditional credit card.
So what exactly is a prepaid credit card? You would not be able to tell the difference between a prepaid credit card and a customary credit card merely by looking at them or using them to make purchases.
Prepaid credit cards carry the names of major credit cards, much like debit cards, which allow consumers to make purchases with plastic tender without ringing up a balance or going into debt. They are offered under the Visa? and MasterCard? names, while some other major creditors, like Discover, also offer prepaid cards.
Differences Between Prepaid Credit Cards and Traditional Credit Cards:
• Make payments upfront to use on subsequent purchases with prepaid credit cards as opposed to carrying a balance.
• Prepaid credit cards operate using only your money, so it is impossible for you to go into debt (as long as you aren’t borrowing funds from friends or family to activate your prepaid credit cards!).
• With prepaid cards, you determine your credit line by how much money you put on your card. With normal credit cards, the issuer dictates how much you can borrow in a particular billing cycle.
• Issuers of prepaid credit cards do not discriminate based on credit history, employment or bankruptcy status, whether or not you have your own bank account or otherwise.
• Prepaid cards do not require billing statements because the money is paid upfront. This also means the consumer faces no late fees, finance charges or interest rates!
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Who Needs a Prepaid Credit Card and Why?
If you find yourself having trouble getting approved for a major credit card, now might be a good time to explore your options with prepaid credit cards. Available as MasterCards, VISAs and several other cards, prepaid cards provide an excellent solution for those whose credit history leaves a lot to be desired.
Prepaid credit cards are also a great option for those who are trying to establish and build up good credit. The beauty of these prepaid cards is that cardholders can improve their credit ratings without ever dipping into debt. Consumers control their credit line by adding as much cash to the prepaid card as they wish, and once that cash is gone, the card never allows the spender to ring up a deficit.
Furthermore, those who have been unsuccessful in getting approved on standard credit cards will be happy to know that prepaid credit cards usually boast no turndowns. Whether you have bad credit, no credit or just plain bad spending and saving habits, a prepaid card might be a partial solution to the problem.
How Do You Use a Prepaid Credit Card?
Prepaid cards make the credit card process convenient and simple for cardholders. Use a prepaid credit card just as you would use any conventional credit card, but make sure you are shopping within your budget or you may not be able to make certain purchases if they exceed your limit.
Step one: Go through our short application process and open an account. You will need to pay a nominal fee to open the account, typically anywhere between $5 and $50.
Step two: Put money on your prepaid card upfront. You can also Direct Deposit your paycheck or transfer funds from your bank account. Many times a maintenance fee is required each time you decide to replenish your account.
Step three: Spend to your heart’s content. Use your prepaid credit card just like a normal credit card. When your prepaid card runs out of cash, your open line of spending ceases to exist. You must replenish your funds before you can continue spending.
Step four: Reload your prepaid card as needed. You may put as much money on the card as you wish, in doing so, giving yourself as flexible a credit line as you want and need.
Step five: Once you’ve established credit or repaired an old credit rating, then you can begin searching for a traditional credit card. Hopefully your experiences with prepaid credit cards will give you guidance in establishing and maintaining good credit.
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What Are the Benefits of Prepaid Credit Cards?
Prepaid cards carry a number of benefits that may entice consumers to give them a shot. From improved credit ratings to avoiding debt altogether, the advantages go on and on.
Benefits:
• Consumers typically find few – if any – problems in getting approved for prepaid credit cards. The bottom line: these cards are easy to get, not matter what your credit history.
• Prepaid card issuers do not discriminate. It doesn’t matter if you’ve got terrible credit or not credit at all, as long as you’ve got your down payment to put funding on your prepaid card. In addition to your credit history and current credit rating, prepaid card issuers won’t discriminate based on employment or bankruptcy status, whether you have your own bank account, etc.
• The application process is relatively painless compared to most credit card apps. Short, sweet and pretty much always approved!
Prepaid credit card approval does not require credit checks and they also usually don’t turn down anyone who applies, as long as they have money to fund a card.
• Because the money on the card belongs to the consumer, he or she faces no interest payments, no late fees and no finance charges. Best of all, no bills – because you’ve already paid for everything!
• Set your own credit limit based on the amount of available funding you prepay on the card.
• Improve your credit rating without running the risk of acquiring any debt. Your prepaid card only allows you to spend the amount that you put on the card.
• Swipe your card anywhere major credit cards are accepted!
• Issuers of prepaid cards do engage in credit bureau reporting, which means that cardholders with poor credit history can improve their credit without risking any problems with debt. Improve your credit rating the safe way!
• Consumers can reload prepaid cards conveniently and easily, with bank transfers or Direct Deposit from paychecks.
Are there Any Disadvantages to Using Prepaid Credit Cards?
As with anything that seems “too good to be true,” there usually is a catch somewhere down the line. With prepaid credit cards, the catch is quite easy to overlook if you’re just trying to build back a good credit rating. Below are the disadvantages associated with owning and using a prepaid credit card.
• These prepaid credit cards can become expensive. Cardholders pay a fee when they first open their accounts and also each time they add cash to the card. Fees may be as small as $5, but they may climb as high as $50.
• A lot of the draw of a credit card for many people is the freedom to spend when they don’t have cash on hand. Consumers may only purchase items with their prepaid cards up to the total amount they’ve funded in the first place, so they first must have the cash on hand to put it onto the prepaid card.
• In most cases, prepaid cards may not be used to pay for monthly bills that are electronically debited from an account. For example, cardholders may not be able to set up an automatic payment option with a utility company or other regular service provider if the consumer’s only form of available tender is a prepaid credit card.
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Should I Get a Prepaid Credit Card?
As with any credit card, consumers should weigh out the options to determine the best credit card to suit their needs. Prepaid cards provide a great answer to problems dealing with bad credit, no credit and uncontrollable spending. By owning and using a prepaid credit card, a consumer can easily establish credit, build up or improve a credit rating and avoid falling into debt at the same time.
It is a great idea to get a prepaid credit card IF:
1. You have a poor or terrible credit history.
2. You have no credit history whatsoever.
3. You have a difficult time disciplining your spending habits.
4. You want to avoid debt while also building a positive credit rating.
5. You have trouble getting approved for credit cards.
Before applying for a prepaid credit card, consider all your options and come up with a good plan of action. Investigate a couple of different prepaid credit card offers. Compare and contrast applicable fees and the terms and conditions. Check out non-prepaid card offers, just in case, and just so you have something for the sake of comparison.
As an example of something to compare, debit cards offer a reasonable alternative to conventional credit cards, and true debit cards also prevent consumers from spending money they don’t have. Most debit cards do not charge an annual fee or set-up fee. Remember, with prepaid credit cards you will incur set-up and maintenance charges even though you won’t be paying interest or finance charges.
No matter what you decide, practice smart spending and saving habits. Adopt a realistic budget. Calculate your month-to-month expenses and plan for a small allowance for personal spending. Open up a savings account and squirrel away any spare change that you have. Use your prepaid credit card as a stepping stone to better credit and more responsible financial behavior.
Did this article help you understand Prepaid Cards? Share it with your friends and family....e-mail them this URL today! Kathryn M. D’Imperio, Analyst, Frankford Financial ?2008
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