The Pros and Cons of Prepaid Credit Cards

You can buy prepaid (or preloaded) MasterCard and Visa cards in drugstores and other retail outlets nationwide. They are different from credit cards and are similar to debit cards, although they are not linked to a checking account.

Prepaid cards require you to load money onto your card before making purchases. Your balance is then reduced every time you use your card to buy something. When your balance reaches zero, you have to reload your card.

Advantages of Prepaid Cards

You do not have to undergo a credit check before purchasing  prepaid credit cards. This is definitely an advantage if your credit score is relatively low and/or if your recent applications for a credit card have been refused.

Prepaid MasterCard or Visa cards are accepted wherever MasterCard or Visa credit cards are accepted, so you can use your prepaid cards to book flights, pay in restaurants, and shop online.

Whenever you use your preloaded card, you should also benefit from the purchase insurance offered by MasterCard or Visa. This means that you should be covered for theft or damage to items bought using your card for a certain period after purchase.

Since you cannot spend more than you actually have on your card, prepaid credit cards can help you to manage your money effectively and avoid getting into debt. If you are trying to keep to a monthly spending budget, loading this amount onto the card can help you to stay within your budget.

Some prepaid card issuers offer their customers certain rewards, such as discounts or cash back on purchases. This can be advantageous if, for example, you shop regularly at the store that issued the card.

A prepaid card can be used instead of a traditional checking account because it is possible to have all your salary paid onto your prepaid card. The fees for some prepaid cards may be lower than those charged by banks for some checking accounts. Also, prepaid cards are available to everyone, so you can purchase one even if your application for a checking account has been refused.

Disadvantages of Prepaid Cards

Perhaps the main disadvantage of a prepaid card is that it does not enable you to improve your credit score by building a good credit history. Since it is not a credit card, the way in which you use your card will not be reported to the credit bureaus. This means that it will have no effect whatsoever on your credit score.

Another potential disadvantage is that prepaid cards usually carry a range of different charges. These may include monthly service fees, reloading charges, and cash withdrawal fees. As soon as you incur each fee, it will be deducted from your balance.

Prepaid cards are as convenient to use as credit cards and you may also be rewarded for using them. They are available to everyone and can help you to keep to a monthly spending budget. However, prepaid cards cannot enable you to improve your credit score and the fees they carry can be quite high.

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