Prepaid Credit Cards for Dummies
A Credit Article Contributed by Mark Mcclelland
What, Exactly, are Prepaid Credit Card
Prepaid credit cards are cards that provide ready access to funds, just like a regular credit card, but where the funds the cards has access to are placed in an prepaid account with the card issuer before the card can be used. And when the car is used, the funds in the prepaid account are immediately withdrawn to pay for the purchases made. Purchases can be made, and funds withdrawn as long as funds remain in the account.
The funds in the prepaid account can be replenished at any time, often using a variety of means, including via phone, or on-line from an existing traditional credit card account or checking account.
Actually, you're probably already familiar with prepaid credit cards... they've been around for years in the form of prepaid phone cards. You use these phone cards to make long distance calls, and often at extremely good per-minute rates. Prepaid credit cards are, in essence, just the "generic" version of prepaid phone cards. You can use prepaid credit cards anywhere you can use a regular credit card; and merchants accept and process them in exactly the same manner.
When the funds in the prepaid account are exhausted, just as when you've exceeded your credit limit with a regular credit card, purchase transactions will be declined. And just like a regular credit card, where you have to pay down the balance to free up some credit, you have to replenish the funds in the prepaid credit card account in order to be able to continue using the card.
Both card types - regular credit cards and prepaid credit cards - are used, and behave, in essentially the same ways.
What Prepaid Credit Cards Aren't
But prepaid credit cards are not real credit cards or secured credit cards, in that no credit is actually involved in the transaction. And they're not debit cards or check cards either, whose use initiates the withdrawal of funds directly from your bank account(s).
The Advantages of Prepaid Credit Cards.
Now that you know what they are and what they're not, why would you use one at all. There are actually quite a number of benefits to using prepaid credit cards, not the least of which is that they don't carry with their use the risk of accumulating more debt than you're able to handle. In addition, their use (or abuse) doesn't affect credit reports since no credit is actually involved.
These cards are perfectly suited for someone who understands and wants to avoid the risk of taking on additional debt by ensuring that everything they buy is paid for in advance, but who doesn't want to forego the advantages of having a non-cash, non-check form of payment available to them (e.g. for use when buying on-line).
And because of the way funds are deposited into, and withdrawn from the prepaid credit card account, it's fairly easy to place and enforce spending limits whenever you (or your teenager) might otherwise be tempted to do a little impulse buying, adding just a bit of enforced self control to those situations that might reinforce poor spending habits... which, of course, we're all trying to rid ourselves of... right?
