Credit Card Articles

Why should you consider a prepaid credit card? Doing anything in today’s economy without some sort of credit card is growing more and more difficult. Plastic is convenient, gives you a statement that tells you where every penny you spent went, and is just about the only way for buying an airline ticket, or purchasing anything online.

Unfortunately, not everyone can get a credit card. Either due to poor credit history, possibly coursed by a financial melt-down as the result of a divorce, or poor job history, the tightening consumer credit market is making it harder for low income people to get credit cards. (Here’s a hint – make a habit of regular payments.)

There are two ways around this – the first is a prepaid credit card. These work just like plastic, but you load them with cash ahead of time. There’s a small fee – typically $10 to $25 to establish the account, and you pay a small amount ever time you load cash onto the card. Every time you make a purchase, the funds are deducted from what’s loaded onto the card and you’re good to go.

This is similar to how a debit card works, except that it’s not hitting your checking account, and the card will simply decline if there is not enough funds on it to cover the transaction, so there’s no fees for “going over”.

One of the drawbacks of a prepaid credit card is that they don’t establish a regular pattern of credit for building up your credit rating. One of the biggest factors in how your credit rating is established is how much of a bank balance you hold, and whether or not you have established a reliable pattern of payment on bills, and a prepaid card doesn’t do that.

A secured card is the next step up – like a prepaid card, you send an initial payment in; this often sets your “account limit” on the card. Purchases made on the card work like normal credit card purchases, and will accrue interest and you can pay them off over time every month to establish your credit rating again. Many secured card offers will give you a limit equal to twice your initial payment. The drawback of secured cards versus prepaid cards is that like any interest bearing credit card, it’s possible to get into a large amount of trouble if you miss payments.

Prepaid credit cards are a great way to give a teenager an allowance or budget to work within, and to get a paper trail of what the funds were spent on at the end of each month, and they can be used to give money as a Christmas or birthday gifts as well.

So to summarise prepaid credit cards a good for you if you have a bad credit history or you just want to remove any chance of over spending, they are also a great way teenagers to get used to spending their money with in a budget and they provide a easy way make cash gifts to your teen age children.