What are Prepaid Credit Cards and How Do They Work?

prepaid credit cards

You can’t tell the difference between a prepaid credit card and a real credit card, but there is a difference. Nearly 80 million people in America choose not to deal with banking institutions for some personal reason, and more than that have questionable credit scores. For these two reasons alone, millions of Americans choose to go the route of a prepaid credit card. For one, it provides those without a debit card from a bank account the opportunity to have some plastic so they can pay for things online or over the phone. For those with poor credit, prepaid cards work like a credit card.

So what is a prepaid card? There are a few things you should know to help you fully understand exactly what this kind of card is and how it works. It’s not that different from a debit or credit card. In fact, it’s a kind of hybrid card; a perfect marriage of the two.

How Prepaid Credit Cards Work

When you get a prepaid card, you have to put money on it. It’s not a card with a limit that you pay a minimum amount towards each month. It’s like a debit card in that what you put on the card is all you have to spend, and you don’t have more until you replenish it. It’s also like a credit card in that sense, except that you don’t get the limit from someone else – it’s from your own personal finances.

Prepaid Credit Cards A Great For Bad Credit

This is a great alternative for people with bad credit. It’s a card that anyone can get, and it lets people with questionable credit have a card that they can use when they book hotels, shop online or do other things of that nature. This card is also not going to allow you to get into debt, because it’s your money. You can’t ‘max it out,’ by spending too much and then have to pay it back.

Be Careful With Prepaid Credit Cards

Some of these cards are a little bit more difficult to use than others, which is why reading the fine print is always necessary. If you’re going to use a prepaid card, choose one with low fees, a low ATM fee, no annual fee and no other charges that are borderline robbery. This will save you significantly in the long run.

Photo Illustration by Justin Sullivan/Getty Images

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