What is a Prepaid Credit Card?

Published on 1 January 1970 by Raffick Marday

A prepaid credit card is available to anyone, whether they have a bad credit rating or not.

Confusion surrounds prepaid credit cards, as they are typically sought by those with a bad credit history, looking to take out a credit card.

They are not credit cards or debit cards, so a prepaid credit card user can not improve their credit rating simply by using it. However, if they have been refused a credit card, a prepaid card still enables them to make purchases on plastic and buy products or services on the internet.

Prepaid credit cards are usually used to help those to spend within their means, as they are required to load money onto the card and cannot spend over this amount.

Users can deposit their salaries into the prepaid credit card, pay bills from the card and even withdraw money from ATMs. When using the cards to make purchases they operate the same way as credit and debit cards by requiring the user to enter a four digit PIN number.

If the user does have a bad credit rating and are currently paying off an outstanding balance, a prepaid credit card could indirectly help them to improve their credit rating.

The card will not allow the user to dip into funds they do not have on the card, so money they have put aside for bills and debt cannot be touched unless they change their budget. Paying bills on time will improve a person’s credit rating.

Prepaid Credit Card Charges

While consumers can obtain a prepaid credit card free of charge, they often come with charges, and it can be more cost effective to purchase one to take advantage of reduced fees.

Some charge a monthly fee for use of the card, others a yearly one, however, if you are considering using your card for an extended period of time, purchasing one straight off could see these monthly or yearly fees reduced if not eliminated.

It is also worth factoring in the purchasing charges and ATM withdrawal fees.


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