Can Prepaid Cards Replace Traditional Credit Cards128796

Prepaid Cards vs . Credit Card Transactions Your prepaid account purchases are funded from an account that's similar to a checking account. You can't make any purchases with the card unless you've first deposited money into the account. And, once you've spent all the money in the account, you can't make additional purchases until you make another deposit.

Traditional credit purchases, on the other hand, are funded from a line of credit that the bank has made available to you. Your credit issuer pays the merchant for your account's purchases and you, in turn, repay the issuer at some point in the future.

A key difference between prepaid cards and traditional cards is that you pay first with prepaid cards and later with credit cards. With a prepaid card, you're spending your own money and with a traditional card you're spending the bank's money, with the understanding that you'll pay it back.

Building Credit With Credit Cards Because you don't have a credit line with a prepaid card, your transactions aren't posted to your credit report. Therefore , a prepaid card won't help you rebuild a bad score and the card won't help you qualify for future credit. But , reckless spending with a prepaid account won't hurt your credit score; it will just leave you broke.

If you book a hotel or rent a car with a prepaid card, you may have to pay an extra deposit or have a temporary hold placed on extra funds on the card. These types of "authorization holds" are less common when you pay with a traditional card.

And Secured Credit Cards A secured card has features of both a prepaid card and a credit card. Secured cards are often a great choice for people who need to rebuild their credit because these cards approve applicants with less than stellar credit histories.

Like prepaid accounts, secured credit cards require a deposit. However , the secured credit deposit is just a one-time payment that "secures" credit line. After that security deposit is made, the secured credit behaves just like a regular credit. Purchases are made against the credit limit and you'll make payments toward your balance. It's like borrowing money from yourself and then paying it back. The plus side is that most secured credit cards are reported to the credit bureaus and your use of the card can help rebuild a bad credit history.

Prepaid accounts definitely have a target customer - prepaid account issuers would eventually stop offering their product to the public if no one wanted them. However , for rebuilding a bad credit history or creating a brand new credit history, a prepaid card is not a good option. You'll need a traditional account with a credit limit - either secured or unsecured - if you want your card use to impact your credit score. prepaidcard mastercard euro prepayee