There are ways a person can get and use credit, it will enable you to improve your credit score and access other forms of credit. However convenient credit is, using credit or debit cards to pay for goods and services in shops and on the internet, there are people to whom these facilities are not available. Those who have a poor credit history or those without the necessary paperwork, required to open a basic bank account.
Having a credit card which you can use to pay for goods and services, can open up options to people. Having prepaid credit cards does mean that you must have the money in the credit card account before you can spend any money, but it does give people choices to shop and feel normal in a society that’s filled with credit.
They are a better option than running up huge credit card bills that you can’t afford to pay off. They will teach those who use them the basic money skills needed. However, if you apply for these for youngsters, in some circumstances it will have a negative impact, with children not knowing the value of real money and being able to deal in cash. But, there are cards out their directed towards children as a way to pay for goods without carrying cash, even having pocket-money paid directly into the card account.
There are many companies offering prepaid credit cards facilities and even some of the high street shops are getting in on the act. However, whilst in principle it might sound great, having a card that you top up in advance means the chosen company is getting your money; they are not paying you interest for the privilege of having a bank account, where the interest might be low but at least you are getting some money in return.
It is difficult for some people to have the required information needed to open a bank account. It is not about refusing people but they are looking to protect those genuine customers from people trying to steal identities and take out credit in their name, but for some people meeting all the requirements is just not possible.
However, there are places where it is possible to get a basic account with less strict identity requirements, often they are places like credit unions. A credit union can sometimes offer those people most in need, options to help them with their financial situations.
The disadvantages for prepaid credit cards
While there are many positives to using prepaid credit cards there are some very distinctive disadvantages too.
- If you haven’t used your card in a set period you might be charged for inactivity.
- There might be set up fees for activating the card.
- Some companies charge for removing money from your card via an ATM.
- If you use the card abroad then you will probably face charges for this.
- Sometimes card providers take a percentage of the money that you top up the card with.
The idea of charging for certain services is for the company to make money. If they can’t charge you for the credit because the money has to be in the account to be able to spend it, they need to make allowances to make money in other ways and this is through charging for different services that you use.
Therefore, if you are considering using a prepaid credit card make sure you understand all the terms and conditions, before you apply and being fully aware of potential charges will allow you to find the best value card for you before you apply.