Prepaid Credit Cards Could Help Build Credit Scores

Before using a prepaid credit card you have to pay for it, thus the self-explanatory identification.The bank of the credit card issuer must receive a “security deposit” of a certain amount to pay for the prepaid card.Most of the time, you will have to pay an amount between $200 and $500 as a security deposit and your credit line is limited to this deposit.

Traditional credit cards are issued to you based on whether or not you have a suitable credit rating, and if you are approved you will have a specified credit line available to you.If you do not have credit established or if you have damaged credit the traditional banks will probably deny you access to a credit card.

With prepaid credit cards the rigorous credit rating requirements may be eliminated and in some instances they may not do a credit check or make verification of your employment.Since your line of credit is secured by the security deposit, the credit card issuer is covered in case you default on the payments.The prepaid credit card can help establish credit or repair bad credit because the security deposit guarantees payment and anyone is eligible. There may be age restrictions (18 or 21), or you may have to be a U.S. citizen, but these instant credit approval cards have a high approval rate because the restrictions are minimal.

Every place you can use traditional credit cards such as Visa and MasterCard, you can use prepaid credit cards.These cards can be used to pay bills online and over the phone and to withdraw cash from an ATM and you can use them to make purchases online or offline.

Advantages like reestablishing credit or building credit and avoiding late payments can come from the use of prepaid credit cards.There are the advantages of not having to write checks and money orders and make extra trips to the post office and your check can be deposited directly onto your check.

Some disadvantages to the prepaid credit card are higher interest rates, higher over the limit fees, and a monthly maintenance fee.Some other disadvantages of prepaid credit cards are; the cards may not be accepted as payment by car rental agencies and a security deposit has to be paid before you can use the card.

It doesn’t matter whether you are building your credit or rebuilding it, you must be on time with your payments and make sure you do not go over your credit limits.Prepaid credit cards were added to our financial resources to help us learn to understand where our money is going and how we can control what we are spending.

It is too easy to let ourselves get caught in the late payment cycle and before we are aware of it we are two or three months behind and the fees are mounting up higher and higher.One way to prevent this is to know ahead of time when your payment is due and try to pay it in advance.If your payments are made on time consistently, many companies will increase your credit limit or return your deposit with interest.

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Alisdair Cosgrove has been writing credit card articles for many years and can find more of his work at the UK site TheMoneyStop.co.uk, offering credit card rewards for UK residents and also a great selection of articles including 'do you pay for the cash back?' and also 'making the right credit card choice'.

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