What are the disadvantages of a prepaid credit card?
While a prepaid credit card may seem like a good idea in many situations especially for people who cannot qualify for a regular credit card due to an unsatisfactory credit history, a prepaid credit card may be an expensive proposition. The main disadvantage of a prepaid credit card comes with the additional fees that are associated with it. Usually when you apply for a regular credit card with your own bank you are not charged any additional processing fee. But in the case of a prepaid credit card there is usually a processing and activation fee. Apart from this there are fixed standing charges which are levied on a monthly basis as well as for certain kind of transactions. Your prepaid credit card may have a monthly transaction fee of as high as almost $10, one dollar for making PIN purchases, one dollar fee to check your balance at an ATM, two dollar fee to talk to a customer service representative and the two dollar fee to withdraw money from an ATM.
All these fees are deducted from the balance on your credit card. So you may find that you have lesser money to spend and what you had originally loaded on your prepaid credit card which may come as an unpleasant surprise if you are not aware of it beforehand.
Another obvious disadvantage of prepaid credit card is that it is not reported to the credit bureaus. A prepaid credit card is more like a checking or a savings account rather than a typical credit transaction. Since you are required to deposit the money before you can spend it, it is not typically a credit transaction. This is mainly white prepaid credit providers do not report the transactions to the credit bureau. Not having the usage of prepaid credit card reported to the credit bureau means that using one will not affect your credit history and will do nothing to enhance your credit score.
Another possible disadvantage of prepaid credit card may be that there may be a threshold as to the amount of deposit that you are initially required to make in order to activate the card. Some people may find it difficult to come up with this deposit. However, this is not such a bad thing as it can be an indicator for a lot of people that they are trying to make expenses they cannot afford. The reason why most of the people get into trouble with credit is by spending beyond their income. If you feel that you cannot afford a prepaid credit card then you should consider the fact that maybe you should not be thinking of spending so much at the moment and saving.
If you are considering a prepaid credit card then you must also look into secured credit card first as that may be a better and a cheaper option for you.