Use – the main reason that people use these prepaid credit cards is to build their credit. Secured credit cards and unsecured credit cards are most definitely preferred over this option, of course, there are individuals who can’t qualify for those options. Most people can get approved for a secured card unless they have had a bankruptcy or another serious credit issue.
How they work – You deposit money and can spend the money from the card, as needed. You generally will pay a monthly fee and the payment of that fee is what the card company will report as an on-time payment. The fee doesn’t go toward your balance, it’s simply the card company’s payment for doing business with you. Whether you use the card or not, you will be required to pay the monthly fee, for as long as your account is open. These cards are actually debit cards – but report to credit bureaus, so you get the positive effect, just like you would with a credit card.
Limits – You can put as much as you want to on these cards, however, you will have to put the money in your account beforehand. There is no actual credit that’s issued with a card of this type.
Interest – Generally speaking, you don’t pay interest when you take out a prepaid credit card. This is because you’re really just spending your own money (in reality they are debit cards). The card company makes its money because of the monthly fees and activation fees that are associated with the cards.
Fees – These cards generally have activation fees, as well as monthly maintenance fees. The activation fee on these cards is generally around $10 and the monthly fees are about $5. You can also expect to pay fees if you don’t use the card each month. Many of the companies that issue these cards charge for online bill-pay, and for customer service. Make sure that you understand all of the fees associated with your card before you open your account.
Warnings – It costs a lot to use these cards. The monthly fees alone are honestly quite annoying. Make sure that you get a card that charges fees that land within the range talked about in this article. Some companies are charging insane rates and you obviously want to stay away from those. Make sure that there aren’t any extra fees, such as insurance fees, that are associated with your account.