Observers in the lending industry have estimated that there may be at
least 50 million Americans who are not able to qualify for credit.
These consumers are usually young, often members of the minority groups
and unbanked...and they are faced with the long-standing dilemma of
credit: how can I build my credit record if no one will give me any
credit at all?
One of the answers offered by credit card companies
is a variety of prepaid credit cards, designed for use by specific
segments in the market. The prepaid credit cards are meant for that
significant portion of the population that cannot meet the qualification
criteria for regular credit cards, or who qualified before but have
since lost their credit due to repeated defaults and other reasons.
Advantages of Prepaid Credit Cards
For those who do not have enough credit history or have had it
blemished, prepaid credit cards are an effective way to build or slowly
rebuild credit. That may not happen immediately, but it is something to
work on over time. The banks that issue prepaid credit cards are also
prepared to extend normal credit the moment you are able to show that
you have become a worthy credit risk.
For the moment, you may have
to make do with prepaid credit cards. You can use prepaid credit cards
as you would any other regular credit card to purchase airline tickets,
reserve hotel rooms, or order items online.
Prepaid Credit Card for Students
There is a special prepaid Visa credit card for students, which offers a
lot of convenience not only for the students but also for their
parents. These reloadable prepaid credit cards offer parents several
options on how to reload. Parents can add money to reloadable prepaid
credit cards by depositing money, by arranging an automatic transfer of
funds from their account (a deposit account or their own credit card
account), or by online transfer. Using the prepaid Visa credit card is
no different from giving the regular allowance to their child, only they
do so by electronic means and there is no more cash that changes hands.
The
big advantage of the prepaid Visa credit card is that the student is
limited to spend only as much money as there is in the card. The parent
is thus able to control to some extent the spending behavior of their
child. They can use the prepaid credit card anywhere that the credit
card brand is accepted.
Prepaid Credit Cards as Gift Certificates
Some prepaid credit cards function like gift certificates. You buy the
prepaid credit card for a certain amount, and your recipient can
purchase items with it at any of the brick-and-mortar stores or online
merchants, and also for mail order items, that accept the particular
credit card brand. Your recipient can use the prepaid credit card only
up to the amount of money that you loaded on it. This particular version
of prepaid credit cards is non-reloadable.
Like any gift
certificate, recipients of prepaid credit cards can buy whatever it is
they want at any time they want. Unlike a gift certificate that, when it
gets lost is lost forever to the recipient, prepaid credit cards may be
replaced if it gets lost or is stolen.
Prepaid Credit Cards for Travel
There is a prepaid credit card designed for travel. These reloadable
prepaid credit cards can be purchased in lieu of travelers' checks or
cash. In a way, it combines the best features of a credit card and a
traveler's check because of its convenience and security features.
Should you lose the prepaid credit card while you are on travel, you can
easily obtain an emergency replacement, both for the prepaid credit
card and some cash.
Prepaid credit cards for travel are accepted
all over the world, and also allow you to obtain currency from ATM
machines. When you need to reload and you are already traveling you can
arrange for the reload by phone or online. Apart from the fact that it
is a prepaid credit card, you can use it exactly like a regular credit
card. That also means you enjoy other benefits just like a regular card
-- reimbursements for lost luggage of up to $1,000 per cardholder if
your luggage is lost; zero liability if your prepaid credit card is used
fraudulently after you lose it or have it stolen from you; purchase
security up to $500 per claim for any items you buy with prepaid credit
cards, which subsequently gets stolen or damaged for certain reasons.
Generally,
you can purchase prepaid credit cards of all the major credit card
brands at their participating retailers. You don't have to worry about
not having acceptable credit because prepaid credit cards are made available without need of a credit report or a bank account. The only
qualifications you need to have are that you have reached 18 years of
age and that you must be able to present a valid identification issued
by government.
Disadvantages of Prepaid Credit Cards
There are a few things about prepaid credit cards that may not be as
convenient as the regular credit cards. For one thing, you load only so
much money onto it. You will need to keep track of the balance on the
prepaid credit card because not all of the merchant terminals where you
use the card may be able to help you determine it. However, there are
procedures that tell you how to determine your balance, and you will
these detailed on the back of the prepaid credit card and in the
instructions accompanying it.
The process of reloading your
prepaid credit card may be a little inconvenient to some. If you're
using cash, you would have to visit the participating outlet where you
bought your reloadable prepaid credit cards. The more convenient way
will be reloading online.
There are also the charges. Prepaid
credit cards impose an application fee, the amount of which varies with
the issuer, and there is also a service charge that you have to pay
monthly. You also have to pay for transaction fees, charges when you transfer funds to top up the balance, when you replace your prepaid
credit card, and many other fees. To be sure about the fees, you should
read closely the fine print on the prepaid credit card account.
Prospects of Prepaid Credit Cards
Prepaid credit cards do not provide credit; it is your money that
you're using. You are asked to pay other charges, so it is not for free.
You are paying for the convenience and security of carrying plastic
instead of large amounts of cash. People with bad credit will be able to
act as if they had a regular credit card and enjoy the convenience of
one.
Issuers of prepaid credit cards realize that it is a good way
to monitor the credit behavior of the cardholder. A prepaid credit card
would be a source of information that indicates to the credit bureaus
and issuing lenders about how you as the individual cardholder use the
card to pay your bills such as utilities. If these consumer data could
be formatted in such a way as to provide the basis for a statistical
model on probable future behavior in spending, then this could become
the foundation for building a credit history.
You would benefit,
because by using prepaid credit cards you are rebuilding your credit.
The prepaid credit card issuers would benefit, too, because they would
be making previously unproven customers bankable. More people could then
qualify for regular credit, and that would mean tremendous incremental
revenue for the lenders.




