Having trouble getting a card because of no credit or a bad credit history? Many banks and credit card companies offer easy to get credit cards designed to help people build or rebuild their credit. It pays to understand the pros and cons though before making the leap into these unique financial instruments.
The good news is that you won’t be charged interest on your purchases, no credit check is required, and there’s guaranteed approval. The bad news is banks and credit card companies have figured out a myriad of other ways to make money off you. Just like any other financial transaction, you as the buyer must beware. But as long as you understand the fee structure, prepaid or secured credit cards can work to your advantage.
Of course you can get by without any credit cards at all. But they have become an integral part of our financial system offering both convenience and security in our daily lives. However, without a credit history or if yours is bad, it can often be very hard to get one. Secured and prepaid credit cards are designed to fill that gap. The only thing you needed to present is your social security number and a minimum cash deposit – usually between $200. and $300. to start funding your transactions. These types of cards have both pros and cons you should be aware of before you make your selection.
Convenience Plus Benefits
Prepaid credit cards offer the convenience of having a credit card when making online purchases or making plane, hotel, or car reservations. Also known as stored-value cards, these credit cards basically function like a debit card, with the one major difference – they are not linked to a bank account. You don’t even need to have one to cash your check anymore. Most offer free direct deposit so check cashing fees will be a thing of the past. As a matter of fact, some even pay YOU with a cash bonus to opt for direct deposit of your paycheck which streamlines the process.
Once you have loaded money onto your card you can start using it to pay your bills. Some cards even offer free bill pay services, but you need to review the details on the card you select. Most require a minimum deposit each month to avoid inactivity fees which you avoid if you have those paychecks directly deposited. Another significant benefit of prepaid cards is that they enable you to slowly build, rebuild, or re-establish your credit history if you make on time minimum payments with all of your creditors using your card and maintain your account balances below the credit limits.
You can then request that your account activity be reported directly to Credit Bureaus on a monthly basis. Sometimes this is a free perk too. Sometimes not. Check the terms for your card. Over time, this will help you improve your credit score, thus saving you money on future purchases and enabling you to secure the credit you require to purchase a home or car.
Most prepaid credit cards come with numerous, obscure and confusing fees, so check terms carefully before applying for a prepaid card. The fees often include an annual fee, which can be high. In addition, you’ll often find potential activation fees, fees for direct deposit, bill pay fees, credit reporting fees, and even fees just to check your balance. Please read the terms and conditions for each card when applying and shop around. The ability to quickly and easily shop terms on the internet means you can often avoid most if not all of these fees that can add up.
Another potential drawback to these cards is that all card services are electronic or happen online. To really benefit from them, you must be comfortable with receiving electronic statements and checking your balances online or via a mobile phone. Most of us are fairly computer literate these days though, so the majority of individuals will not find this to be an issue.
Today, most of us use credit cards on an almost daily basis to pay bills and make purchases. Those that have limited or bad credit might want to consider prepaid or secured credit cards to gradually improve your credit score and enjoy all the advantages of having good credit. Best of all, easy to get credit cards help you develop a discipline for managing credit wisely and help you avoid falling into a debt trap as you become eligible for a prime credit card and get access to higher and higher lines of credit.
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