Advantages and Disadvantages of Prepaid Credit Cards

Copyright (c) 2009 Liz Roberts

Today, credit cards can be considered as a necessity rather than a luxury. Many hotels, airlines and car rental companies offer online reservations which uses the credit card payment system. Truly, credit cards provide great convenience and practicality not only in purchasing things but in paying bills as well.

But what if you don't own a credit card? Some people cannot qualify for regular credit cards because of their credit history. If you have bad credit, this may not be the best time for you to apply for a credit card account. Nevertheless, you can still enjoy the convenience of using card payment systems by getting a prepaid credit card.

Prepaid Credit Cards - How To Use Them

Prepaid credit cards can be used for payment just like a regular credit card. You can use them to buy things from online stores or make online reservations to your chosen hotel, airline or car rental company. You can use them to pay for your purchases at groceries, boutiques, diners, drugstores, convenience stores, gasoline stations and any establishment that accepts credit card payment.

What makes a prepaid card different is that it does not provide the account holder with a credit line. Instead, the cardholder must first deposit cash in the account before the card can be used for payment. If you deposited $300 in your prepaid card, you can use it to pay your bills as long as you don't exceed $300. Once the cash deposit has been used up, the cardholder must make a new deposit in the account.

Advantages of Prepaid Credit Cards

Prepaid credit cards are generally accepted everywhere, particularly cards that bear the Visa or the MasterCard logo. Having a prepaid card allows you to do your shopping without carrying cash. But since you are not borrowing against your credit line, you don't need to pay for additional interest rate or late penalty fees. The risk of overspending of uncontrolled spending is also reduced because you can't use the card if you don't have available funds.

If you want to purchase from an online store or make reservations but you don't want to reveal your details or your bank account in the internet, you can use a prepaid card instead. If you're worried about identity theft or fraud, you can deposit only the exact amount of purchase to your prepaid card account each time you want to purchase online.

Anyone who wants to apply for a prepaid card can do so without worrying about getting declined. Yes, even people with bad credit history or without a job can easily acquire a prepaid credit card.

Disadvantages of Prepaid Credit Cards

Are there disadvantages to using prepaid credit cards? One disadvantage is that you need to pay a flat rate to open an account and an annual fee to keep your account active. It is also very important to choose a prepaid card with reasonable transaction fees because you will be automatically charged with the transaction fee each time you use the card for payment.

Another disadvantage is that not all issuers of prepaid cards report to the credit bureaus. In order to build your credit history, you need to make sure that credit reporting is provided by the prepaid card company.