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Observers in the lending industry have estimated that there may be at least 50 million Americans
who are not able to qualify for credit. These consumers are usually young, often members of the
minority groups and unbanked...and they are faced with the long-standing dilemma of credit: how
can I build my credit record if no one will give me any credit at all?
One of the answers offered by credit card companies is a variety of prepaid credit cards, designed
for use by specific segments in the market. The prepaid credit cards are meant for that significant
portion of the population that cannot meet the qualification criteria for regular credit cards, or who
qualified before but have since lost their credit due to repeated defaults and other reasons.
Advantages of Prepaid Credit Cards For those who do not have enough credit history or have had
it blemished, prepaid credit cards are an effective way to build or slowly rebuild credit. That may
not happen immediately, but it is something to work on over time. The banks that issue prepaid
credit cards are also prepared to extend normal credit the moment you are able to show that you
have become a worthy credit risk.
For the moment, you may have to make do with prepaid credit cards. You can use prepaid credit
cards as you would any other regular credit card to purchase airline tickets, reserve hotel rooms,
or order items online.
Prepaid Credit Card for Students There is a special prepaid Visa credit card for students, which
offers a lot of convenience not only for the students but also for their parents. These reloadable
prepaid credit cards offer parents several options on how to reload. Parents can add money to
reloadable prepaid credit cards by depositing money, by arranging an automatic transfer of funds
from their account (a deposit account or their own credit card account), or by online transfer. Using
the prepaid Visa credit card is no different from giving the regular allowance to their child, only
they do so by electronic means and there is no more cash that changes hands.
The big advantage of the prepaid Visa credit card is that the student is limited to spend only as
much money as there is in the card. The parent is thus able to control to some extent the spending
behavior of their child. They can use the prepaid credit card anywhere that the credit card brand is
accepted.
Prepaid Credit Cards as Gift Certificates Some prepaid credit cards function like gift certificates.
You buy the prepaid credit card for a certain amount, and your recipient can purchase items with it
at any of the brick-and-mortar stores or online merchants, and also for mail order items, that
accept the particular credit card brand. Your recipient can use the prepaid credit card only up to
the amount of money that you loaded on it. This particular version of prepaid credit cards is non-
reloadable.
Like any gift certificate, recipients of prepaid credit cards can buy whatever it is they want at any
time they want. Unlike a gift certificate that, when it gets lost is lost forever to the recipient, prepaid
credit cards may be replaced if it gets lost or is stolen.
Prepaid Credit Cards for Travel There is a prepaid credit card designed for travel. These
reloadable prepaid credit cards can be purchased in lieu of travelers' checks or cash. In a way, it
combines the best features of a credit card and a traveler's check because of its convenience and
security features. Should you lose the prepaid credit card while you are on travel, you can easily
obtain an emergency replacement, both for the prepaid credit card and some cash.
Prepaid credit cards for travel are accepted all over the world, and also allow you to obtain
currency from ATM machines. When you need to reload and you are already traveling you can
arrange for the reload by phone or online. Apart from the fact that it is a prepaid credit card, you
can use it exactly like a regular credit card. That also means you enjoy other benefits just like a
regular card -- reimbursements for lost luggage of up to $1,000 per cardholder if your luggage is
lost; zero liability if your prepaid credit card is used fraudulently after you lose it or have it stolen
from you; purchase security up to $500 per claim for any items you buy with prepaid credit cards,
which subsequently gets stolen or damaged for certain reasons.
Generally, you can purchase prepaid credit cards of all the major credit card brands at their
participating retailers. You don't have to worry about not having acceptable credit because prepaid
credit cards are made available without need of a credit report or a bank account. The only
qualifications you need to have are that you have reached 18 years of age and that you must be
able to present a valid identification issued by government.
Disadvantages of Prepaid Credit Cards There are a few things about prepaid credit cards that may
not be as convenient as the regular credit cards. For one thing, you load only so much money onto
it. You will need to keep track of the balance on the prepaid credit card because not all of the
merchant terminals where you use the card may be able to help you determine it. However, there
are procedures that tell you how to determine your balance, and you will these detailed on the
back of the prepaid credit card and in the instructions accompanying it.
The process of reloading your prepaid credit card may be a little inconvenient to some. If you're
using cash, you would have to visit the participating outlet where you bought your reloadable
prepaid credit cards. The more convenient way will be reloading online.
There are also the charges. Prepaid credit cards impose an application fee, the amount of which
varies with the issuer, and there is also a service charge that you have to pay monthly. You also
have to pay for transaction fees, charges when you transfer funds to top up the balance, when you
replace your prepaid credit card, and many other fees. To be sure about the fees, you should read
closely the fine print on the prepaid credit card account.
Prospects of Prepaid Credit Cards Prepaid credit cards do not provide credit; it is your money that
you're using. You are asked to pay other charges, so it is not for free. You are paying for the
convenience and security of carrying plastic instead of large amounts of cash. People with bad
credit will be able to act as if they had a regular credit card and enjoy the convenience of one.
Issuers of prepaid credit cards realize that it is a good way to monitor the credit behavior of the
cardholder. A prepaid credit card would be a source of information that indicates to the credit
bureaus and issuing lenders about how you as the individual cardholder use the card to pay your
bills such as utilities. If these consumer data could be formatted in such a way as to provide the
basis for a statistical model on probable future behavior in spending, then this could become the
foundation for building a credit history.
You would benefit, because by using prepaid credit cards you are rebuilding your credit. The
prepaid credit card issuers would benefit, too, because they would be making previously unproven
customers bankable. More people could then qualify for regular credit, and that would mean
tremendous incremental revenue for the lenders.
Credit-Wisdom.com Provides Expert opinions and reviews to help you Compare and Apply for a
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Article Source:
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