Prepaid Credit Cards Help The Underserved

Thanks to the collapse of the country and world financial markets, many people are finding themselves shut out of the banking and credit card loops because they do not meet the new rigid approval standards. This phenomenon makes it hard for underserved folks to conduct business.

So many of our everyday transactions involve credit card use: you need a card to make reservations for hotels, rental cars, airline flights, and for other important reasons. Even if you plan on paying cash for everything, most venues require a card number for their own protection. If you cannot qualify for a credit card because of bad credit, one solution that may help is to use a prepaid credit card.

What is a prepaid credit card?

This type of card operates a lot like a debit card that you might get from a bank or credit union: you deposit funds into an account, and when you use the card to make purchases or pay bills, the funds are removed. A prepaid credit card is fully reloadable and can be used for as long as you need it.

The main difference between this kind of card and a credit card is that no matter how much you "charge" on it, you will not be going into debt and end up paying mountains of interest charges. It is your money that you are spending, not a credit card company's: once the money runs out in the prepaid account, the card cannot be used again until you reload more funds onto it.

Where can it be used?

A prepaid card can be used anywhere that major credit cards are accepted, and it can also be used to remove cash from ATMs virtually anywhere. The only possible restriction is that certain creditors (such as a cable company, for example) may not let you use a prepaid card under an automatic payment system. The reason for this is that the creditors have no way of knowing if there will be money on the card each month to cover the bill.

What's the catch?

There are fees associated with the use of a prepaid credit card: after all, this is how those who provide them make a living. But these fees are fairly insignificant. Users are usually charged between $5 and $10 to open the account to begin with, and there is a small service fee charged whenever the user loads more money onto the card. However, for people with bad credit who cannot obtain a card any other way, the benefits of having a prepaid card far outweigh the small fees for using it.