One of the ways that you can establish - or re-establish - your credit is to use a prepaid credit card. These are credit cards that require some sort of collateral from you before you can use them. For some consumers, a prepaid credit card can be just the right thing to help with credit problems. However, it is important not to confuse a prepaid credit card with a prepaid debit card.
Prepaid Debit Card
In recent years, the prepaid debit card has become quite popular. This type of debit card can be loaded regularly. It is sometimes marketed as a way to help teenagers learn about using plastic, or as an alternative to a checking account. You put money on the card (it can even be direct deposited), and you can use the money that is available. When you run out, you have to reload the debit card or it won't work.
Prepaid debit cards often come with a number of fees, and you need to be careful about what you are being charged. They work like credit cards, though, and you won’t be charged interest. However, it is important to note that your payments into your prepaid debit card account won’t be reported to credit card bureaus. A prepaid debit card is useless when it comes to improving your credit situation.
Prepaid Credit Card
A prepaid credit card, on the other hand, is a credit loan. Sometimes, a prepaid credit card is called a secured credit card or a guaranteed approval credit card. You are required to have collateral, in the form of money in an account used for that purpose. You will be charged interest on your credit card purchases, and there may be other fees. However, when you make regular payments on the prepaid credit card, it will be reported to the credit bureaus. Making regular, on time payments on your prepaid credit card can help you establish better credit. After you have been responsible with your prepaid credit card, you can usually convert it to an unsecured credit card.
Choosing Between the Two
Before you decide which to get, you should think about your needs. If you are just looking for the convenience of plastic, and you don’t want to worry about paying interest, a prepaid debit card might work. If, however, you want to rebuild your credit, or begin establishing a credit history, the prepaid debit card is useless; you should get a prepaid credit card. Before you get any card, ask the issuer whether or not it will be reported to the credit bureaus. This will be your clue as to what kind of prepaid credit card it is.
Whether you get a credit card or a debit card, though, it is important to shop around. Compare fees, and find out what you will be charged fees for. You want to minimize your fees, since paying them can cut into your wealth and cost you quite a bit. After you figure out what you want, you can then apply with the issuer that offers the best deal.
