You pay for the credit card before using it, this is why it is called a prepaid or secured credit card.The bank of the credit card issuer must receive a “security deposit” of a certain amount from the credit card applicant to pay for the prepaid card.The credit line on the credit card will be limited by the security deposit amount, normally between $200 to $500, which has been prepaid for the use of the card.

With traditional credit cards, you apply for credit and receive approval or you are denied based on your credit rating, then if approved, you are issued a credit card with a specified line of credit.Traditional banks usually will deny the use of a credit card or line of credit to those who have a damaged credit rating or no credit.

The issuers of prepaid credit cards may ignore the rigorous credit rating requirements used by traditional lenders and in some instances they may not even do a credit check or make verification of your employment.Since your line of credit is secured by the deposited security amount, the credit card issuer is covered in case you default on the payments.The prepaid credit card can help establish credit or repair bad credit because the security deposit assures the card issuer of payment and most people are eligible.Prepaid credit cards have a high approval rate because the overall restrictions on them are few, there could be age restrictions or U.S. citizenship may be required.

Prepaid credit cards can be used just as you would use traditional credit cards, anywhere that VISA and MasterCard is accepted these cards can be used with ease.You can use prepaid credit cards online and offline, you can pay bills online and over the phone, and you can withdraw cash from ATM machines with them.

Prepaid credit cards offer can offer such advantages as allowing you to rebuilding credit or establishing credit for the first time and they can help you avoid making late payments.Other advantages of the prepaid credit cards are the elimination of the need to write checks and money orders and make trips to the post office to pay monthly bills, and your paycheck could be deposited directly onto your card.

There are some definite disadvantages to the prepaid credit cards; such as frequent high interest rates, a monthly maintenance fee, and higher over the limit and late fees.The prepaid credit cards may not be accepted by the car rental agencies and the required security deposit before the card can be used by you can also be some of the disadvantages of prepaid credit cards.

Whether you are rebuilding your credit rating or establishing credit for the first time, it is very important for you to make your payments on time and you must be careful to not exceed your credit line limit.The main reason prepaid credit cards were introduced to the public was to help us learn how to be responsible in our financial matters and develop better spending traits.

It is easy to allow ourselves become involved in the late payment cycle and before we realize it, we are two or three months behind and the fees keep getting higher and higher.If your payments are made on time consistently, many credit card companies will increase your credit line limits and may possibly return your deposit with interest.

Tags: credit cards, prepaid credit cards

This entry was posted on Saturday, November 15th, 2008 at 12:22 pm and is filed under Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.