Prepaid credit cards or junior credit cards can be effectively used for purchasing, but they cannot be treated as credit cards as it is not possible to avail credit by using these cards. This article tells you in detail about the following
- What are prepaid credit cards and what is the principle behind it?
- What are the benefits of prepaid credit cards?
- What are the major drawbacks of prepaid credit cards?
What is a prepaid credit card and how does it work
Prepaid credit cards are also known as debit cards or sometimes as junior credit cards. This type of credit card offers many of the shopping advantages of regular credit cards. However, it is not truly a credit card because you cannot get credit. Instead, this type of credit card only allows you to spend money that you have placed on an account.
When you apply for a prepaid credit card, your income and your credit rating are not considered. Instead, you contact a credit card company or your bank and add money to your card. Then, you activate your card just as you would a regular credit card. Once you have done this, you can start using your debit card just as you would your credit card. In fact, there is no way to tell by looking at a card whether the card is prepaid or not. As with regular cards, you can use your prepaid credit card online, on the telephone, or in person.
Each time you make a purchase with your card, the amount of your purchase will be deducted from your total balance. To spend more money, you can simply add more money to your account.
There are several types of prepaid credit cards, including traditional cards, youth cards, and gift cards. Traditional prepaid cards can be used by almost any user. Special student or teen cards are designed for younger card users. Many parents buy junior or teen cards for their children in order to teach their children how to manage money.
A teen card can be a convenient and safe way to provide an allowance and it can give children the money-management skills they need later in life. Gift prepaid credit cards work much the same as gift certificates, but can be used at any participating merchant. They are ideal for travel and for holiday gifts.
Disadvantages Of Prepaid Cards
If you are intrigued by prepaid credit cards, you must know that there are some drawbacks to these types of cards:
- Prepaid cards will not be of much use if you cannot add money to the card. Traditional credit cards can help you by acting as short-term loans if you find yourself out of cash. Prepaid cards simply cannot offer you the same advantage. You can only spend what you already have.
- Prepaid cards will not build your credit score like credit cards will because you are not being entrusted with credit.
- You need to keep track of your balance carefully in order to make sure that you do not run out of money.
- Prepaid cards offer fewer rewards, bonuses, and features than traditional credit cards.
- You need to keep adding money to your card. If you spend a lot with your card, you may find that you need to make several deposits into your account each month.
- Although some companies advertise free prepaid credit cards, most prepaid cards require fees for registration and fees for adding money to your account. This can make them expensive in actual use.
- Debit cards cannot usually be used to make monthly payments on a recurring basis. That means that you will have to charge your card anew each time you wish to pay your bills, rather than setting up an automatic credit card withdrawal each month.
Advantages Of Prepaid Cards
Prepaid credit cards are becoming more popular. Partly, this may have to do with the many advantages these types of cards can offer:
- With prepaid credit cards guaranteed acceptance is the norm. Since there are no income or credit checks, you can get your card as soon as you place some money in an account – even if you do not qualify for traditional credit cards.
- The best place to get prepaid credit cards is where it is most convenient for you to apply. You can get the cards online, over the phone, or in stores and financial institutions.
- Since you are not borrowing money from a credit card company, you do not pay interest or get monthly bills for your card.
- Major credit card companies offer prepaid credit cards, and many stores and banks offer them as well. This means that you can use your card wherever you would use a traditional credit card.
- It is virtually impossible to get far into debt with prepaid credit cards, since you are not borrowing money. This makes this type of card ideal for those on limited budgets and for those with spending problems.
- This type of card will not lower your credit rating.
- You can use the same online account management features as you would with traditional credit cards, so that you can manage your money and keep track of your budget easily.
- There is no credit limit on most debit cards. You can add large amounts of money for larger purchases or smaller amounts of money for controlled spending – it is up to you.
Now that you understand how debit cards or prepaid credit cards work, you can decide whether these cards are for you. Whether you get a debit card to supplement your current credit card or apply for a prepaid card in lieu of a traditional credit card, deciding on this type of credit card can be a wise way to help you control your money.
