Why Use a Prepaid Credit Card?

There are many benefits to using a prepaid credit card.  A prepaid credit, also known as a secured credit card  is defined by bank rate as a credit card that, “…requires a cash collateral deposit that becomes the credit line for that account.”

What are Some Advantages of Using a Prepaid Credit Card?

You can Control your Spending

By choosing your limit to load the card you can create controls in how much is spent.    Since you are only spending money you add to your prepaid card account, you can avoid falling into debt and possibly damaging your credit score. Because you’re not borrowing money, you will never have to worry about finance charges, late charges, or over-the-limit fees.

Additionally, most prepaid credit card sites allow for you to easily track your spending.

Both features could be particularly useful for children and teens.  A prepaid credit card could be used to give them the freedom to purchase online or at any store that takes a major credit card, but gives them a build in limit and lets the parent see what was purchased.

The Ability Purchase Online

Unlike cash, since a prepaid credit card has a major credit company backing it, you can use it online.

Increased Security

With increasing crime rates in certain parts of a the country you have to ask yourself whether it is really smart to carry around a wad of cash?  A prepaid credit card provides you with the option to cancel it if you were ever robbed, mugged, or if you simply lost your wallet.   Similar to other mastercard or visa products prepaid credit cards provide that particular company’s liability protection if unauthorized charges are made.

Everyone is Accepted and it Helps Build Credit

Since the amount being used is secured, there are no rejections when it comes to secured or prepaid credit cards!  They also provide a credit payment history to the major credit reporting agencies.

This post was written by Money 411. Money 411 is by AccountNow and is tailored to provide useful advice to the millions of Americans who are either unbanked or underbanked.

4 Responses to Why Use a Prepaid Credit Card?

  1. I am definitely for prepaid credit cards just because of the fact that you can control your spending… as long as you don’t prepay an extremely large amount! You would still need to discipline yourself and pay a reasonable amount. It for sure comes in handy if you need to give your teenager a credit card!

  2. @Derrick I agree, prepaid credit cards are the way to go if you are going to give a credit card to a teenager. That way you don’t get into the situation where they turn to their parents asking for buckets of money to pay off their credit cards. It also helps to keep their credit rating safe.

  3. I’ve never tried using one before, but maybe that’s the next step! Usually my debit card is good enough!

  4. While the other things you said are in fact true, that it can help you control your spending, it is 100% untrue that pre-paid cards report to credit bureaus. You are confusing a pre-paid card with a secured credit card.

    A secured credit card is also often available for those who have damaged credit and they often don’t have any requirement for a credit check. However, these are not pre-paid.

    The way they work is that you send money to be held in a savings account and then that secures your spending on the credit card which is issued to you. You pay back a loan which is guaranteed against the money held by the bank.

    A pre-paid card by comparison never reports to credit bureaus because it’s not a credit card. It has a Visa or MasterCard logo and is accepted pretty much anywhere those cards are accepted, however because you are simply spending down money already on the card, they do not report to the credit bureaus.

    After all, what would they report? That you spent money? The credit bureaus want to know that you paid back loans. They know that with a secured card. They don’t with a pre-paid card.

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