Introduction
In today’s world, many Americans struggle to obtain a bank account that comes with a credit card, or simply do not wish to have one. However, it can be difficult to function without it. The good news is that prepaid debit cards provide a way to enjoy many of the benefits of standard cards without some of the challenges.
How Does a Prepaid Card Work?
Visually, it is very easy to confuse a prepaid card with a physical credit card. Most of the time, prepaid cards look exactly like credit or bank debit cards, carry the logo of the card network, and can be used in most places that accept credit cards.
Before you can use a prepaid card, you will need to load funds onto your account, similar to how you would load a gift card. You can only spend what has been loaded onto your card. Whenever you use your prepaid card, the amount of your purchase is deducted from your balance. Your available balance decreases further each time you make additional purchases.
For example, let’s say you deposited $300 onto your prepaid card. After paying $150 to rent a car, you would only have $150 left to spend. Once you have completely used your balance, you must reload more funds onto the prepaid card before you can use it again.
It is worth noting that a credit card gives you a credit limit that you can borrow against for purchases. You have the option to repay your purchases in monthly installments or all at once.
Managing your prepaid card is more akin to managing a checking or savings account rather than managing a credit card. There’s no need to worry about minimum monthly payments, finance charges, deadlines, or penalties for late payments. Your spending limit is the cash amount that you currently have on your card. You won’t have any revolving debt balances or required minimum payments or deadlines to think about, and there’s no risk to your credit score.
Do Prepaid Cards Help Build Credit?
You can obtain a prepaid card regardless of your credit history. Card providers do not check your credit because you are not borrowing money. Unfortunately, this also means that prepaid cards will not help you establish or improve your credit.
Using a prepaid card does not reflect anything about your borrowing or repayment habits, so card companies have nothing to report to credit bureaus. In short, if you use a prepaid card, it will not impact your credit score, whether it is good or bad.
If you are looking to rebuild your credit, consider a secured credit card as a better option. It is similar to a prepaid card in that you must deposit funds, but it is, in fact, a credit card. The deposit acts as collateral in case you do not pay off your credit card balance, and your payment history is reported to credit bureaus.
How Much Does a Prepaid Card Cost?
Prepaid cards can come with a variety of fees. Before choosing a card, read the “fine print” to determine the option that comes with the least amount of fees so that you do not deplete any money you load onto the card.
For example, the Account Now Prepaid Visa card charges a monthly fee of $9.95, an ATM withdrawal fee of $3 per transaction, additional loading fees of up to $5.95 for loading money onto the card, $2.50 for each ACH transfer from your account, and $1.50 for balance inquiries at the ATM. Each time you pay a fee, it is deducted from your balance, meaning you have less money remaining to spend.
Due to
Because the cost plays a significant role in choosing your prepaid card, make sure to pay close attention to the fee schedule for any card you are considering. Many of them come with no monthly fees and also keep other fees to a minimum.
Who Uses Prepaid Cards?
You might use a prepaid card if your bank does not offer debit cards and you do not have a traditional credit card, or if you are unable to obtain a checking account due to your poor credit with ChexSystems. ChexSystems monitors the activity of individuals’ checking and savings accounts for commercial alerts regarding people who write bad checks when making purchases.
Children and college students are also considered good candidates for prepaid cards. Parents can load money onto the card for their children to use and start teaching them good money management skills. For college students, parents can easily reload money onto the card to pay for books, food, and ongoing expenses.
With the growing popularity of prepaid cards, they are no longer used only by people with poor credit or who cannot obtain a checking account. Some people use prepaid cards to help manage their budgets.
How to Load More Money onto the Card?
It has become easier to load more money onto prepaid cards, and you can fill your card with money in the following ways:
- Transfer money from a financial institution or bank.
- Your employer can directly deposit your wages onto your prepaid card.
- You can transfer money from your PayPal account.
- Reload the card at a retailer such as Walmart or Walgreens.
- Choose a reloadable card such as Vanilla or MoneyPak.
Was this information helpful?
Thank you for your feedback!
Sources:
FDIC. “2017 FDIC National Survey of Unbanked and Underbanked Households.”
Experian. “Do Prepaid Credit Cards Help Credit Scores?”
Source: https://www.thebalancemoney.com/how-does-a-prepaid-card-work-960201
Leave a Reply