Why Use a Prepaid Credit Card?

Why should anyone consider using a prepaid credit card? First of all booking or ordering almost anything without having a credit card is near impossible, or at least incredibly inconvenient and downright embarrassing! In today's society not having a credit card effectively isolates you from the convenience of the modern economy. if you don't believe me try renting a car, booking air tickets or reserving a hotel room or even theater tickets without one!

The simple fact is that not everyone qualifies for an unsecured credit card (for unsecured credit card read "normal credit card"). Normally this is down to previous credit problems. Everything involving credit comes down to a computer credit score nowadays and unfortunately computers don't care about your divorce problems, that you were laid off last year or that you had some unexpected emergency outlay such as major home repairs - if you have a low credit score then you will not get approved for lines of credit and having a conventional credit card is not an option. Gone are the days when you could perhaps discuss your problems with a friendly bank manager who knew your history, computers decide on your eligibility for credit using raw data from credit institutions.

There are, however, a couple of options if you find yourself unable to get approved for a card. The first and most popular option is a prepaid credit card. this essentially means you have a credit card that is accepted worldwide - such as Visa or Mastercard - but you have to prepay, the credit limit is set at the cash balance remaining on the card. This allows you to have most of the convenience of a credit card and also stops you from getting into any further financial difficulties. Also when you use these cards no one will realise it's a prepaid card, it looks just the same as any other credit card. essentially these cards operate much like debit cards. The only difference is the money does not come directly from your checking account, you have to credit the card with payments first. the only downside to these cards is they will not help you rebuild credit, the payments you make to the card will not show up on your credit file.

To re-establish your credit you need a secured credit card. This works in a similar way with your initial payment setting a credit limit. However this initial payment does not go onto the card as a balance. The payment is kept as security in case of default and the card operates in much the same way as a conventional card, with interest payable. If the card is run in a satisfactory manner then over time the credit limit extended will increase over and above the initial deposit and payments made are reported to the credit bureaus. This can mean an increased credit score and eventually the end to your credit problems. The disadvantage with this type of card is that it is possible to get into financial hot water once again!