Although prepaid cards charge various fees that you don’t usually find with regular credit cards, they can be worth those fees if you have terrible credit and are looking to rebuild your credit score, which can dramatically save you money in the long term on loans, mortgages, and other major credit purchases.
As a general rule, you should always apply for a standard credit card first; however, if your credit history is so bad that you simply cannot qualify for a regular credit card, your best option to rebuild your credit is a Prepaid Credit Card that reports your account to the major credit bureaus.
As far as merchants are concerned, a prepaid card is no different than any other credit card. They usually carry either the Visa or MasterCard logo, and they are accepted virtually anywhere. They also provide the same consumer protection afforded by other Visa and MasterCard cards. However, they differ in that you must fund your purchases in advance, whereas a regular credit card provides you with a line of credit.
The other major difference is the heavy fees that come with most prepaid cards. They can cost you anywhere from $50 to $150 or more a year, and you’ll have to read the fine print closely, because there can be various fees for purchases, deposits, and even online access.
So, in reality, you’re paying extra fees in order to spend your own money. Even so, you’re paying for the privilege of making purchases you otherwise couldn’t (i.e, online, rental cars, etc.) and in return, you are able to take advantage of credit bureau reporting to rebuild your credit score and history.
Make sure your prepaid card reports to all three major credit bureaus, which includes Experian, Equifax and TransUnion. Some prepaid cards report to just one, but you can’t choose which bureau a potential future lender will use to review your credit, so you must improve your credit files at all three bureaus.
You’ll save an incredible amount of money once your credit score improves, and you’ll also have the opportunity to possibly purchase a car or a house in the future.
If chosen cautiously and used wisely, Prepaid Credit Cards will definitely help rebuild your credit history if you have poor credit.