Are Prepaid Credit Cards the Answer?

Prepaid credit cards are a hot topic of conversation when it comes to credit cards.  The prepaid cards have been on the market for several years now in the UK, but many consumers aren’t aware of what the card can do or whether it is something they will want.  In the last year many have been turning to the prepaid credit card option as they try to recover from debt issues.

Prepaid credit cards offer a couple of things that regular credit cards don’t have.  First on a regular credit card the individual is given a credit limit.   This limit when reached is going to cut the individual off from using the card.  There is also the interest rate to consider on the regular credit card.

With prepaid credit cards the individual doesn’t have to worry about an interest rate.  There isn’t going to be one.  There are set up fees, a monthly fee, and a reload fee.  These fees are between 5 and 20 pounds.  Occasionally the prepaid credit card company will waive the monthly fee or the reload fee.  They will not waive the transaction fee.  Each time the card is used there is a transaction fee.  The credit limit on the card will start out small, but once the individual gets used to using the card and they increase their credit scores, they can start adding more to the limit.  A prepaid credit card limit doesn’t work the same as a regular card.  In order to use the card, money has to be in the account in which it will be debited from.

The credit card company just states in the first few uses that no more than 250 pounds can be placed on the card at any one time.  There are other companies that don’t even have this stipulation.  There is more control with the prepaid credit card.  The difference between the prepaid credit cards and the debit cards is the reporting process.

The prepaid credit card reports like any other credit card account to the credit reporting agencies.  The consumer will be able to increase their score as long as they use the card and reload the card.  It will take a few months to see improvements, but it is a better situation than trying to get a regular credit card to work for you.

With regular credit cards there is always that possibility of spending more money than you had intended.  Prepaid credit card companies are even willing to offer their credit cards to young adults.  Teenagers who need to have a little money to spend can get a card with parental approval on the account.  It allows the parents to monitor their children’s spending as well as making it convenient for them to use, especially in replacement of cash that is not always on hand when needed.

The prepaid credit card option has several reasons for why consumers have considered it.  By comparing the prepaid card with a regular credit card it is easy to see some of the advantages.

Back To Credit Card Updates July 2008