You pay for the credit card before using it, this is why it is called a prepaid credit card.The bank of the credit card issuer must receive a “security deposit” of a certain amount to pay for the prepaid card.In most cases an amount between $200 and $500.00 is required and your credit limit is equal to the amount of your security deposit.
When you apply for a traditional credit card, you are approved or denied based on your rating and if approved, you are issued a credit card that has a specific limit on it’s credit line.If you have damaged credit or if you have no credit, you may be denied by traditional banks.
The closely enforced credit rating requirements may be eliminated on prepaid credit cards and sometimes they may not do a credit check or verify your employment.Your credit card’s line of credit is secured by the deposit which you made before receiving the card, so the issuer will receive payments even if you happen to default.This is a way for people to rebuild their credit or establish credit for the first time and because these cards are secured by your deposit, anyone is eligible. There may be age restrictions (18 or 21), or you may have to be a U.S. citizen, but these instant credit approval cards have a high approval rate because the restrictions are minimal.
Traditional cards like MasterCard and Visa and prepaid credit cards are all used and accepted in the same places.These cards can be used to pay bills online and over the phone and to withdraw cash from an ATM and you can use them to make purchases online or offline.
Prepaid credit cards can help establish or rebuild credit and keep payments from being late.Other advantages to the prepaid credit cards are that your check can be directly deposited onto your card and it will eliminate the need to write money orders and checks and go to the post office.
The prepaid credit cards have disadvantages such as interest rates that are often higher, higher over the limit fees and a monthly maintenance fee.Other disadvantages of the prepaid credit cards are the security deposits which must be put down before you can use the card and the card sometimes will not be accepted by car rental agencies.
It doesn’t matter whether you are building your credit or rebuilding it, you must be on time with your payments and make sure you do not go over your credit limits.Prepaid credit cards were added to our financial resources to help us learn to understand where our money is going and how we can control what we are spending.
It is easy to get caught up in the late payment cycle and before you know it, you are 2 to 3 months behind and the fees continue to add up.The way to prevent this is to know what the date is when our payment is due and attempt to pay ahead of time.By making a consistent effort to pay your payments on time, most companies may return your deposit with interest and increase your credit line.
