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Prepaid credit cards — a blessing?
funds with the issuing bank or company. Then use the card, which looks identical to a normal credit card, anywhere MasterCard, Visa, etc are accepted. Use of a prepaid credit card can't lead to credit problems since you're never allowed to go over the limit of the funds you deposited. Also, you don't have to remember to make a monthly payment, since the amount is deducted from your account automatically. And there's no credit check to qualify. But, beware. Even though there are no interest charges, these pre-paid credit cards are far from free. Many issuers charge an application fee or a monthly membership fee. To make matters even more dicey, there are a variety of charges associated with using a pre-paid credit card long term. Initial purchase fees may run from $5.95 for cards of $25-$300, up to $7.95 for $301-$600, for example. If you paid $5.95 for a $100 card, that's equivalent to a nearly 6% fee. That's pretty stiff — and that's each time, not annually. (Some 'set-up' fees run as high as $50). Also, most will charge some kind of 'loading fee'. Every time you deposit funds, so you can make future purchases, you get whacked. Fees generally run from $5 or more. It's also possible for your funds to 'fade away'. Many cards expire within a year or two, some as short as six months. Of course, to get one 're-activated' costs a fee. On the flip side, if you don't use all the funds within that period, there's often a monthly service fee. Around $2.50. To make matters worse, if you choose not to use all the funds within that time, institutions will sometimes charge $15 for a 'closure' fee. That's $15 to get any of your remaining funds returned. If the card is lost or stolen you will be able to get a replacement, but 'reissue fees' run typically $4-$6. Some cards can be used like ATM cards, but that too costs. $1.50 is average, but $5 is not unknown when using a machine from another bank. The lesson from all this is simple. Shop around to look for the lowest set-up fee, the lowest loading fee, and keep a reminder of when your pre-paid credit card will expire. Pre-paid credit cards are not the first choice of cards, but for those with bad credit they may be the only way of participating in a society which increasingly requires credit cards for basic living items. Renting a movie or a car? Need a credit card. Getting electricity turned on at a new address? Need a credit card. There are ways around this dilemma, but they're inconvenient and often require large cash deposits. On the upside, for those with no or bad credit, these pre-paid cards do help provide some form of credit history. Use one responsibly for a while and banks may be more willing to issue a regular credit card. And, they do offer the benefit that they're accepted practically anywhere. As a temporary stop on the road to better credit, prepaid cards can offer just the relief you need.
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