Prepaid credit cards are simply Visa, Mastercard, or American Express branded cards that are loaded with money and used as credit cards where credit cards are accepted.
How Does a Prepaid Card Work?
With a prepaid credit card, you deposit money onto the card, sort of like a gift card. Then, as you use your prepaid card, the amount of your purchases is deducted from the balance reducing the amount you have left to purchases. Let’s say, for example, you deposit $300 onto your prepaid credit card. After paying $150 for a car rental, you’d only have $150 left to spend. Once you’ve used your entire balance, you have to reload more money onto your prepaid credit card before you can use it again.Managing a prepaid credit card is more like managing a checking or savings account than managing a credit card. You don’t have to worry about interest, finance charges, or late payments. What you have in your account is all you’re able to spend. There’s no revolving balance or due dates to think about.
Who Might Use a Prepaid Credit Card?
You might sign up for a prepaid credit card if your bank doesn’t carry Visa- or MasterCard-branded debit cards and you don’t have a credit card, or if you can't get a checking account because you have a bad credit with ChexSystems. This will allow you to spend money as if you had a credit or debit card, though you really don’t have one.
Children and college students are also good candidates for prepaid credit cards. Parents can load money on the card for their young kids and begin teaching them good money management skills. For college students, parents can easily reload money onto the card allowing the students to easily pay for books, food, and other expenses.
Will It Help Rebuild Credit?
You can get a prepaid credit card regardless of your credit history. But, a prepaid credit card won’t help you establish or improve your credit. Using a prepaid credit card says nothing about your borrowing or repaying habits, so the card companies don’t report to the credit bureaus. If you have a prepaid credit card, it won’t appear on your credit report or influence your credit score.If you’re looking to rebuild your credit, a secured credit card is a better option. It’s similar to a prepaid credit card in that you have to make a deposit to get the card. But, it’s actually a credit card. The deposit acts as collateral in case you don’t pay your credit card balance.
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