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Those who can’t get approved for credit can still own a credit card. Prepaid credit cards look and feel like an actual credit card, but act like debit cards.
Anyone is entitled to a prepaid credit card. Individuals with good credit may opt to use a prepaid credit
card for trips, particularly overseas since little damage can occur if the credit card is lost or stolen.
However, the majority of people who receive prepaid credit cards are those with poor credit who can’t
qualify for a regular credit card.
With a prepaid card, you open an account, deposit money and then use the card to make purchases. If there
is no money or not enough money to cover a purchase in your account, your card will be declined.
The difference between a pre-paid credit card and regular credit card is that as their names imply, with a
pre-paid credit card you pay before using the card, while with credit cards you pay after you use the card.
Advantages of Prepaid Credit Cards
There are some significant advantages to having a pre-paid credit card. It allows consumers who wouldn’t
otherwise qualify for credit have some of the convenience of a regular credit card. With prepaid credit
cards, consumers can buy plane tickets and take advantage of sales discounts online, reserve hotel rooms,
rental cars and much more.
To open and use a prepaid card, there are no credit checks, no bills and no interest rates. It is also
impossible to rack up huge debt with a pre-paid credit card, since you can only spend the money you have
in your account.
The disadvantages of Prepaid Credit Cards
There are disadvantages associated with prepaid credit cards. Consumers typically have to pay a fee to
open a prepaid credit card account, as well as pay a fee each time money is deposited into the account.
There are often other fees, such as fees to use an ATM machine or do business with a teller at a bank.
Some subscription services and online businesses do not to accept prepaid credit cards because there is
no guarantee there will be enough money on the credit card every month to cover the purchase.
These credit cards also do nothing to improve your credit history and credit score. If your intention for
using a prepaid credit card is to build a positive credit history, pre-paid credit cards are not the way
to go.
As stated with prepaid credit cards, you can’t charge more than you have deposited into the account. This
can be a drawback in an event of an emergency where you may need access to cash that you may not readily
have on hand at that moment.
Despite their disadvantages, pre-paid credit cards can be a convenient resource for those with poor credit histories.
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