The prepaid card can be a wonderful tool to add to your financial arsenal when used correctly. Also known as a debit card, prepaid credit cards allow you to build credit without getting into debt or going further into it, and it can also help you improve your credit score at the same time. Better yet, it also helps consumers to learn ways to manage their budgets and improve their spending habits. However, there are some common stigmas surrounding the use of prepaid cards and their benefits so it is good to do your homework, understand the positive and negative effects of using prepaid cards, and shop around before selecting a card to use.
Stigma #1 Prepaid credit cards do not help consumers improve their credit.
Using a prepaid credit card can really help boost your credit score while positively affecting your credit history. In some ways it actually offers more advantages than using traditional cards. Prepaid cards carry no interest charges and they can help build credit as long as you select a card that is issued by a company that reports the payments made directly to the credit bureaus.
Stigma #2 Prepaid credit cards cant be used at most merchants.
Prepaid cards can be used in the same manner as regular credit cards because they are usually backed by one of the major credit card companies. Therefore, any merchant that accepts traditional credit cards will accept prepaid cards as long as there is enough money on the card to cover the purchase. If there arent enough funds on the card for a purchase then the card will be denied and the difference will have to be made up with cash.
Stigma #3 Consumers dont have control of the spending limits on prepaid cards.
The main difference between a traditional credit card and prepaid card is that the latter is completely controlled by the cardholder. The initial deposit used to open the card becomes the credit limit, and when the user wants more money then he/she can add it to the card. Prepaid cards help users monitor their spending since the consumer can only spend the amount of money available on the card. This is another reason why prepaid cards are a great option for someone that wants to build good credit.
Stigma #4 Prepaid cards are laced with all kinds of fees and rules.
There is some truth to this stigma. Card companies do charge fees for adding money to prepaid credit cards and will even charge you for not adding money within a certain amount of time. There may also be limits on how much money you can put on the card and the minimum balance that must be kept in the account.