Dubbed pay as you go or stored value cards, prepaid credit cards are proving to be the ultimate alternative to conventional credit cards. Accounting for more than $100 billion of purchases a year, this secured credit card which operates as a reverse bank account is forecast to post transactions totaling more than $250 billion by the end of 2009. Prepaid credit cards offer the ease and convenience associated with traditional charge cards- allowing consumers to pay all their bills (i.e. utilities, rent, gas, groceries) and make online purchases- but without borrowing funds from the issuer. Rather, the concept involves a debit card linked to a checking or savings account. These renewable debit cards also provide greater flexibility than single retailer gift cards and gift certificates. Prepaid credit cards function as follows:
The customer deposits a certain amount of cash into a prepaid credit card account. He or she is issued a pre-funded debit card When the balance is depleted or decreases, the borrower has the option of reloading or refilling the card with more cash.
With prepaid credit cards, borrowers can make purchases up to the sum pre-deposited into their account. There are no limits imposed by credit card companies; it is the consumer who decides how much cash to load onto the card. This type of secured credit card enables borrowers to monitor their expenditures and curb or avoid overspending. It is a particularly useful money management tool for teenagers who obtain the convenience of a credit card while learning financial responsibility. Prepaid credit cards prevent splurging on the part of teens since they are limited by the amount deposited into the account. There are numerous advantages to using a pay-as-you-go card:
Guaranteed approval Ease of use Worldwide acceptance A greater measure of safety and less risk than carrying cash No line of credit, thus obviating the need to repay any debt No possibility of debt due to the fact that the cardholder is not borrowing funds ATM cash access No bills or interest charges No late fees or overdraft/NSF fees Free direct deposit and avoidance of check cashing fees No activation fee when customer utilizes direct deposit to load their card No annual fee (most prepaid credit card companies waive this charge) No participation or application fee (many issuers waive these as well) No minimum balance requirement
Some prepaid card providers charge a small fee for setting up the borrower’s account- typically between $5 and $10- and for reloading the card. As consumers use the card to make payments, funds are automatically deducted from the balance on the card. The card can be used for purchases and bill payment until the consumer has depleted the balance, at which point he or she may choose to replenish the funds.In the fast-paced world in which we live in, credit cards have become almost indispensable and are necessary for numerous undertakings ranging from hotel reservations and car rentals to large expenditures. It is estimated that nearly 60 million Americans are unable to obtain a traditional credit card due to ineligibility attributable to a poor credit score or no credit at all. Those who do manage to find a credit card for which they qualify are slapped with an exorbitantly high interest rate. Bad credit credit cards are specifically intended for the segment of the population struggling to access a standard unsecured card or needing to establish credit. Bad credit does not disqualify applicants from acquiring a prepaid credit card. Furthermore, there is no credit history requirement or credit check associated with credit cards for bad credit. Many issuers of prepaid credit cards report to credit reporting agencies (TransUnion, Equifax, and Experian), thus enabling individuals with a tarnished credit record to rehabilitate their credit rating and those with no credit to build a credit history. By improving their credit score or establishing a credit history, consumers boost their chances of obtaining a traditional credit card, mortgage, or loan. The short and easy application process, which typically involves only a few simple steps, may be completed online. Prospective borrowers are not asked to submit to employment verification or meet income requirements. They must simply have a bank account in order to load the card. Approval is granted within minutes of submission of the application. Prepaid credit cards are widely available for purchase both online and at participating retail stores and financial institutions. Consumers may avail themselves of an extensive choice of secured credit card options offered by the most prestigious names in the financial arena such as MasterCard, Visa, J.P. Morgan, Western Union, and Citibank. Enticing prepaid credit card deals and promotions abound on the World Wide Web, and some of the rewards include 1) shopping discounts, 2) cash back, 3) free merchandise, and 4) air miles. One type of prepaid credit cards- gas credit cards-usually offers discounts on gas purchases as well as cash-back on auto maintenance and gas purchases.