Think you want a prepaid credit card? You might want to think twice. Those who decide to purchase these cards often do so for the wrong reasons. While prepaid cards definitely have their time and place, make sure you're buying yours for the right reasons. Here are three things you need to ask yourself before you spend a dime...
1. Why Do You Need It?
The first thing you need to ask yourself when applying for a prepaid credit card is why you need it. Is it because you don't have good enough credit to qualify for a traditional card? If that's the case, you might want to try a secured card instead.
While a prepaid credit card will help you make credit card purchases, they can't help rebuild your credit. The companies that issue these cards don't report your information to the credit bureaus. This means that no matter how long you use it or how good you are with it, it's never going to help you get a real credit card.
2. Would a Secured Card Be Better?
Secured credit cards and prepaid credit cards are very similar in some ways. With a secured card, you pay a security deposit (which goes into a savings account) and then use the card just like a traditional credit card. With a prepaid card, you pay a specific amount of money (which is applied to the card) and then use the card for purchases up to the amount you deposited.
If you don't want the hassle of monthly statements and don't need to build your credit rating up, a prepaid credit card will work well. If, however, you need to improve your credit rating and want a card that works just like an unsecured card, a secured card is the better bet.
3. Do You Understand All of the Costs?
The term "free prepaid credit card" is an oxymoron. No prepaid credit cards are really free. If you want one of these cards you're going to have to pay for it. Even if you don't have to pay an initial "activation" or "processing" fee you're going to have to pay transaction fees or monthly maintenance fees. The question is, how much are you going to pay?
Before you purchase any prepaid credit card, make sure you understand all of the fees and costs involved. Read the terms of service very closely. These hidden fees can usually be found in the fine print.
Not all credit situations are created equal, and neither are all credit cards. Before you sign up for a prepaid credit card, keep the above three tips in mind and make sure it's really the way to go.
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