Prepaid Credit Cards: A Secure Alternative For Consumers With Bad Credit
With the recession and recent credit squeeze, many consumers are finding it harder to apply for a credit card. Many are finding that with their current credit scores, they are getting rejected because of bad credit. You might think “So, what. I don’t need a credit card.”
Unfortunately, a major credit card is needed to make reservations for hotels, car rentals and airline flights. You also need a credit card to place an order online or over the phone. So, how is a person with bad credit supposed to survive?
As you will see below, prepaid credit cards (also called secured credit cards) are a good way for a person with bad credit, or no credit, to have access to the benefits of a credit card. Let’s take a look at prepaid credit cards, how they work and how they can benefit the consumer with bad credit.
What Is A Prepaid Credit Card?
You open a secured credit card account by depositing money into an account much as you would a savings or checking account. Once the money is safely in the account, the credit card issuer issues you a credit card with a limit equal to that of the amount that you deposited. You use the credit card just like a regular credit card.
You can use the prepaid credit card up to the limit of the deposit. You cannot spend anymore unless you pay off the credit card or make another deposit. You can always have the company pay the balance with the funds on deposit as well. In theory, a prepaid credit card works the same way as prepaid debit cards linked to your checking account.
Downside To Using Prepaid Cards
Although pre paid credit cards are generally a good idea for those with bad credit, there are some fees involved in opening the account.
Fees And Charges. You will have to pay a fee of $5 to $10 to open the account. Also, you will be charged a fee every time you make a deposit onto the credit card. But for those with bad credit or who are unable to manage their finances, the benefits far outweigh the fees charged to use the card.
No Ability To Pay For Subscriptions. If you are planning to use the prepaid credit card to purchase a subscription or monthly internet service, it might not be possible. Many service providers do not accept a prepaid credit card because of the possibility that the account will be empty when the bill comes due.
Prepaid Credit Cards Are Good Alternative For Bad Credit
If you are suffering from bad credit and have gotten rejected when you apply for a credit card, a prepaid credit card may be a good alternative. You have all of the advantages of a regular credit card without the danger of spiraling deeper into debt. Be careful of the fees and understand that your prepaid card may be useful for recurring services. All in all, the prepaid credit card serves as a useful alternative to those needing a prepaid Mastercard or prepaid Visa card.
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