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What Is A Prepaid Credit Card?

What Is A Prepaid Credit Card?

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• Updated: July 13, 2018

With all of the credit card offers you may be seeing on TV and in your mailbox, you have likely heard of prepaid credit cards before.  Do you know what they are, why you might want one, or how to get the most out of their use?

What is a prepaid credit card?

If you’ve ever used a gift card at your favorite retailer, you’re already familiar with the basic idea of a prepaid credit card:  money is loaded on the card in advance, to be used at your convenience.  When you’ve used up the prepaid amount, there are usually several ways to reload:  transfer from your PayPal or bank account, have a direct deposit made from your paycheck, or go to a brick-and-mortar retailer (e.g. Walmart) with cash in hand.

Most prepaid cards are issued by the credit card companies you already know - MasterCard, Visa, American Express, Discover - and can be used anywhere those cards are accepted. Keep Reading: How to increase your credit limit

Why would I want a prepaid credit card?

If you’ve struggled with credit, a prepaid credit card may offer you the convenience of a traditional card - especially for activities, like renting a car or booking a hotel room, which require the use of a credit card - without requiring the approval of a bank or credit card company.

Using a prepaid card may also help you get back on top of your credit and establish healthy spending habits, since you can’t spend more than you’ve funded on the card.

Additionally, some parents appreciate being able to send their young adult off to college with a card that can be used for books, groceries, or other purchases, without the temptation to go on an unlimited spending spree with Mom and Dad’s money! Keep Reading: 5 surprising benefits of having good credit

How can I get the most out of a prepaid credit card?

One of the biggest differences between traditional and prepaid credit cards is the need to be aware of monthly maintenance and activity fees:  many prepaid cards do charge users for the initial purchase of the card, along with fees for use and non-use.  Be sure to read the fine print, typically on the back of the card itself or in the documentation accompanying the card, so that you don’t wind up with any unpleasant surprises!

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