How Does a Prepaid Credit Card work?

A prepaid card is virtually mistaken for an actual credit card. These cards look similar to that of the credit cards and it can be used in those places where credit card payments are accepted. A prepaid card can be used for making various online purchases, for hotel reservations, cab booking, airline bookings and even using the money to repair or fix your home.

A person having low credit score can also have prepaid cards. However, you need to have money in your card for using it. However, the main difference between credit card and prepaid card is that the prepaid cards do not allow you to carry the balance and it does not have the option of ‘pay later’ unlike the credit cards.

How does a prepaid card work?

Using prepaid card is very much similar to gift cards. For using a prepaid credit card, your account has to be loaded with sufficient amount. The amount that you can use will be only the amount that you have loaded. As you make purchases, the amount will get deducted from your account. The balance constantly gets reduced as you keep on making your purchases. For example, you have deposited $100 onto your prepaid card. After spending $50 on cab booking, you will have $50 left to spend.  If you make any other purchases, the amount gets deducted from your balance and once all the balance gets over, you have to load your prepaid card with sufficient balance to use it again.

If you compare it with a credit card, the latter gives you a credit limit. You can borrow only within that particular limit against the purchases you make. You have the benefit of monthly installments where you can repay your purchases on monthly basis. You can also repay it all together. One of the best things about a prepaid credit card is that you don’t have to worry about due dates, finance charges, minimum payments and late payments. In other words, you do not have to worry about your credit score as well.

Most of the people think consider a prepaid card as a prepaid credit card. This is because most of the card companies like MasterCard, Visa, etc. shows equivalent logo on the facade of the cards. In reality, these cards are more like debit cards because a debit card is used for withdrawing amount and this is same like the usefulness of a prepaid card.

Do prepaid cards build your credit?

One of the best things about a prepaid credit card is that in spite of a bad credit score, you are eligible to get a prepaid card. There is no need of credit history to acquire this card. As you are not borrowing any amount, therefore your credit history is not checked. Because there are no credit checks, you should always keep in mind that you will not be able to build a credit score with it. However, if you wish to build a good credit score, then one of the best options will be a secured credit card.

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