When you do not have a credit history or the bad credit report is proving a big hassle to get a fair credit card, you could try a prepaid credit card.
With a bad credit rating, one could face regular rejections at various credit companies. Now I’m sure you are very aware of the benefits that a credit card provides. Right from hotel reservations, car rentals, airline flights, emergencies to even groceries. The only hitch is that one needs to make monthly payments in time, or else the risk of going negative in credit would always be around. With prepaid credit card although you would not have to bother about all this, however, there are a lot of limitations.
What is a Prepaid Credit card?
To open a prepaid credit card, one just needs to make a deposit in the account like in a checking or savings account. Once this amount registers on the account, the applicant receives a prepaid credit card. The card can be used in the same way as the normal credit card.
Advantage
The biggest advantage is that one can only use the money that one really has in the account, so no problem of going overboard when it comes to spending. Once the money is exhausted, the user cannot spend any more until he or she replenishes the prepaid credit card account. Also there are no bills, or interest charges. The principle is similar to that of using a debit card that a bank issues in connection with a savings or checking account.
The biggest advantage is that it’s very secure when it comes to identity theft. Your social security number is not connected to a prepaid credit card; you simply load it with cash and use only what you have on it. If someone finds your lost card, they can’t use it to follow any paper trail to your vital information. However, if you want to be able to live without your social security number being a big red target for thieves, you can use prepaid credit cards to do so.
Limitations
So now that you can only use what you have in your account, you’ll have to pay a fee to establish an account. Although the fee amount varies from bank to bank, this generally varies from $5 to $20. Also every time you pay additional fees every time more cash in your account. Another limitation of a prepaid credit card is that the owner cannot use it to pay for a monthly Internet subscription, or to make a purchase on monthly installment payment terms. Businesses that offer such arrangements are usually averse to allowing the use of prepaid credit cards. This is because of the possibility that a prepaid credit card holder will have no money in the account when the bills are due for payment. These cards will not help in building any credit history whatsoever.
All said and done, a prepaid credit card is still a useful way out for those with bad credit ratings. It is a fact that one needs a credit card to get by in today’s world, and a prepaid credit card does offer most of the advantages of a credit card. Even the limitations can work to one’s advantages, because they equal better financial control. In fact, using a prepaid credit card often cures all the inconsistencies in spending habits that lead to bad credit rating in the first place!
A variant of the prepaid credit card is the student version. With these one can allocate a certain amount of money for credit charging to one’s child who is studying at college within or outside the country. Many parents find it a very useful tool for allocating a pre-set allowance to their children.
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