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Prepaid Credit Cards: The Inside Scoop

Prepaid credit cards can be a handy way for you to control how much you spend, but still let you enjoy the ease and flexibility of a credit card. Although they're not strictly a credit card (since you're not really borrowing anything), they work just the same, and can be invaluable to re-establishing bad credit.

What are prepaid cards?

Prepaid cards are just what they say: cards that you pre-pay—before you use them to make purchases. So you set the limit by how much cash you put down on your card. Of course, that means you have to have the money to place on your card

Where can you get them?

Most major credit card distributors—VISA and Mastercard—have pre-paid credit card options. And the great thing is neither you nor the store will be able to tell your pre-paid credit card from any other credit card you may carry.

What should you look for when selecting one?

• Be sure your prepaid card will submit credit bureau reports if you're using the card to rebuild your credit
• See what the annual fee will be (it can vary considerably)
• Some cards offer rewards plans (air miles or aeroplan)
• Some plans even have cash back options

Why do people use prepaid credit cards?

There are lots of reasons you might choose a prepaid card:

• It sets an automatic limit on your spending
• It helps you establish and stick to a budget each month
• It can help restore bad credit
• It can be a great way for parents to teach their teens how to use credit wisely (while still keeping spending under control)
• You can give a prepaid credit card as a gift (instead of a gift certificate, for example)

A prepaid card can be a great way to have the option of credit, without the risk of credit. For someone trying to restore bad credit, a prepaid card may be the best—and possibly only—way to go.

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