Prepaid Credit Cards

Unlike other credit cards on the market, prepaid credit cards work differently. Prepaid credit cards will have a monetary balance that is deducted from each time you use the card. I like to think of prepaid credit cards as a variation of debit cards because you have to have money in the account if you want to use it. Instead of running a credit line with a credit limit the prepaid card only has a limit of how much is in the account. It means before you can spend any money you have to have the money.

Right now you might be asking yourself what the pros of this type of card could possibly be. You’re in luck because we will be listing those for you:

One was already mentioned- you can only spend what you can afford.
These cards have fraud protection
Replacement of prepaid credit cards is a lot easier than replacing money. They work a lot like traveller’s cheques in that respect.
Prepaid credit cards have Visa or MasterCard as their backers, which means they are widely accepted.
Fixed exchange rates
No foreign exchange fees on purchases
Charge back options
No annual fees
No interest
Improve your credit score

There is a long list of advantages to the prepaid credit cards. One thing that should be mentioned is if you have bad credit. When you have bad credit most credit card issuers will not touch you. They will refuse your application. You have two options when it comes to this point. You can find a company offering a high interest bad credit credit card or get a prepaid credit card. The prepaid credit card will help you repair your credit score and history.

Secondly, it should be mentioned that prepaid credit cards are a great way to give children money with some control. You know exactly how much they have to spend, and they know that you can find out very easily how much and where they are spending it.

Disadvantages of prepaid cards are minimal when you consider regular credit cards:

Prepaid card charges
Inactivity fees
No Section 75 protection

When you open a prepaid credit card account you will find a set up fee is charged. This is usually 10 pounds. Some prepaid cards have a monthly fee between one and five pounds. However, there are also hundreds out there that do not have the monthly fees. Each time you reload the card there is a fee, usually 1.5 to 2 percent. Depending on the card there may also be a transaction fee. The inactivity fee is 2 to 3.5 pounds per month if there is a 12 month consecutive non- use of the card with a zero balance.

Section 75 protection is for regular credit cards on purchases. This act protects against purchases you make that you did not receive, were broken, or were incorrect. In other words if you have a loss you can recoup your losses on regular credit cards, but not prepaid credit cards.