Prepaid Card Facts You Should Know Our posts on prepaid cards get more retweets than anything we’ve written before on any other topic on this blog.
Facts about the prepaid card Prepaid Card Facts You Should Know:
Plus, now that we’re well into the holiday shopping season, it’s probably the best time to write about prepaid cards, as they’re one of the most popular gift items in their gift form. So here are eleven facts about prepaid cards that will help you better understand what makes the fastest growing type of payment card unique, and maybe explain why people love them as much as they do.
1. All types of prepaid cards work on the same principle: a certain amount is credited (“loaded”) to the account associated with the card, which is subsequently withdrawn with each purchase.
3. Prepaid programs can be divided into three general groups: open-loop, closed-loop and hybrid:
In an open-loop program, cards bear the logo of the payment network (Visa, MasterCard, etc.) and are accepted and processed at all merchants that accept other cards of that brand.
In a closed program, card acceptance is limited to specific locations. The best example is a gift card issued by a merchant only for use in their stores.
In the hybrid program, card acceptance is extended to a wider range of unrelated merchants, but there are restrictive requirements (for example, the requirement that merchants be located in a specific shopping center) Prepaid Card Facts You Should Know.
Prepaid cards can be reloaded or cannot be reloaded:
Top-up cards allow users to increase their card balance.
Non-rechargeable cards can only be used until the original loaded balance is used up.
5. Prepaid cards can be used for various purposes, including:
Personal expense cards.
Payroll cards that some employers use to pay their “unbanked” employees (those without a bank account).
Electronic Benefit Transfer (EBT) cards that give their users access to food stamps and similar government programs.
Flexible Spending Cards (FSAs) that allow employees to access funds for medical bills, mass transit and other types of purchases.
6. Prepaid cards look and work like a debit or credit card at checkout Prepaid Card Facts You Should Know.
7. In the event that the balance on the prepaid card is insufficient to complete the purchase, the merchant may still draw free funds and accept another form of payment for the remaining balance. This type of transaction is known as a “split tender”.
8. Prepaid cards can be personalized to display the name of the cardholder. To get a personalized card, you must order it online.
9. Some prepaid programs provide zero liability protection for loss and theft of cards. These are usually open-loop programs and cardholders are required to register their cards with the relevant payment network.
10. Some prepaid cards can be used at ATMs, but not gift cards.
11. Prepaid cards do not affect your credit score in any way Prepaid Card Facts You Should Know.
Prepaid cards occupy a niche that is largely outside the domain of credit and debit cards. This makes them uniquely suited for some purposes, such as gift-giving or EBT distribution, but they were also largely neglected by regulators when drafting the CARD Act. As a result, prepaid plans can vary significantly.
Before you buy a prepaid card, make sure you read the terms and conditions, understand the fee structure and any minimum or maximum load requirements that may apply Prepaid Card Facts You Should Know.
Whichever payment card you choose, you should make sure you understand how it works and whether there are any fees, additional costs, or restrictions.
If you’re a college student or nearing the end of high school, you may have thought about getting a credit or debit card to help you on your way through college. Payment cards are convenient and can be very useful in emergency situations. Why Should College Students Have Credit Cards? In addition to being used for payments, credit cards, if used wisely and responsibly Prepaid Card Facts You Should Know,
can also help build your credit history. Choosing a credit card can be difficult because there are different types of cards with different terms, interest rates and fees. This article focuses on the three common types of payment cards – credit cards, debit cards and prepaid cards.
Credit, debit and prepaid cards each work differently.
A credit card allows you to pay for things with borrowed money. When you use a credit card, you use “borrowed” money to make a purchase or get a cash advance, and you have to pay it back. If you don’t pay the full amount by the payment due date, most credit card issuers will charge interest on the unpaid balance. Some issuers also charge interest on a cash advance from the time you receive the advance until it is repaid. With a credit card, you have access to a certain amount of credit set by the card issuer (hereinafter referred to as your credit limit) Prepaid Card Facts You Should Know.
A debit card allows you to pay for things with money in a linked checking account. With a debit card, you can generally only spend up to the amount you have in your checking account. If a debit card doesn’t have overdraft protection (which allows you to spend more than you have in your linked account up to a set limit), a debit card can give you tighter control over your spending Prepaid Card Facts You Should Know.
A prepaid card is like paying in cash. It is not linked to a current account and does not involve borrowing money. With a prepaid card, you can generally only spend what you’ve added or loaded onto it. The advantage of using a prepaid card over cash is the protection it provides if the card is lost or stolen. There are a variety of prepaid cards – general purpose top-up cards, loyalty cards, gift cards, payroll cards, employee benefits cards and government benefits cards – and each type of card may have different eligibility requirements and account terms Prepaid Card Facts You Should Know.
2. ELIGIBILITY REQUIREMENTS
Credit cards require the independent ability to make minimum payments. To qualify for a credit card, consumers under the age of 21 must have the independent ability to make the required minimum periodic payments under the terms of the account based on their income or assets and current liabilities Prepaid Card Facts You Should Know.
Debit cards require a bank account. When you open a checking account, you can apply for a debit card linked to that account.
Prepaid cards are not linked to a current account and do not require an independent ability to make minimum payments. You can get a prepaid card at retail stores (such as grocery and drug stores), online, over the phone, or at some banks and credit unions. If you get a card online, you may be issued a virtual card or receive a physical card in the mail later Prepaid Card Facts You Should Know.
3. CHARGES BETWEEN SERIES
The types and amount of fees for prepaid, debit and credit cards vary from card to card and from issuer to issuer.
Common credit card fees include interest fees, annual fees, late payment fees, chargeback fees, card replacement fees, and foreign transaction fees.
Common debit card fees include ATM withdrawal fees Prepaid Card Facts You Should Know.
Common prepaid card fees include monthly fees, transaction fees, ATM withdrawal fees, balance inquiry fees, cash top-up fees, paper statement fees, denial fees, inactivity fees, card-to-card transfer fees , card replacement fees, additional card fees, foreign transaction fees and card cancellation fees.
For each card you choose and plan to use, make sure you understand what fees may apply. Feel free to ask your bank representative questions about the availability and price of overdraft protection and special student rates or allowances.
4. YOUR CREDIT HISTORY
A credit card, unlike a debit or prepaid card, can help you build a good credit history if you use it wisely and responsibly Prepaid Card Facts You Should Know.
A good credit score can have many benefits, including access to lower interest rates, better terms and availability of loans; credit cards with the lowest interest rates and best rewards; lower car insurance premiums; availability of more housing options and lower security deposit; and utility bond waivers.
Making timely payments on your credit card account and other responsible credit card use can help you build and maintain a good credit history. The sooner you start building credit, the sooner you can enjoy the benefits of a good credit score. But don’t just take it from us – hear from the experts at Experian why the establishment of Credit Young is important Prepaid Card Facts You Should Know.
5. NO CARD WILL SAVE YOU FROM YOURSELF
Credit cards can cause financial problems if you don’t use them carefully. While most student credit cards have low credit limits, it’s still easy to buy more than you realize and find yourself paying interest on a balance you can’t afford to pay off.
Some money management experts consider debit and prepaid cards better for students because they limit spending to only what’s on the card or in your account. However, even debit and prepaid cards may offer overdraft protection that allows you to make purchases over your account balance. Not only does overdraft protection remove the expected spending limit on debit and prepaid cards, but it usually comes with a hefty fee. Since no card can stop you from spending if you really want to – that restraint, whenever required, must come from you.
A credit card can still be a wise choice as long as you are careful to only spend what you can afford to pay for. In this way, the card can help you stick to your budget and build a good credit history.
A prepaid credit card won’t boost your credit score, but it can come in handy when making online purchases or paying bills. Many people also use prepaid cards as a way to teach their children about money management Prepaid Card Facts You Should Know.
Prepaid cards vs. debit cards vs. Credit Cards
Unlike debit cards, prepaid cards are not linked to a bank account. And unlike credit cards, prepaid credit cards don’t have a line of credit. Prepaid cards are issued by banks and financial services companies. Instead, you only have access to the money you put into it. You are not borrowing money or paying a deposit that serves as collateral Prepaid Card Facts You Should Know.
Advantages and disadvantages of prepaid cards
For the most part, a prepaid card works like any other card. To make a purchase, you can swipe or tap into most point-of-sale systems. So you might be wondering what’s the point of a prepaid card when most people can just pay with cash. Prepaid cards have advantages and disadvantages that are worth considering. Let’s look at a few Prepaid Card Facts You Should Know:
Advantages of a prepaid card
A prepaid card is more affordable than a credit card
If you think you might not qualify for a credit card, a prepaid card is probably the way to go because you don’t have to worry about qualifying for a particular card. The issuer of the prepaid card allows you to access the card without checking your credit history.
You don’t have to worry about overspending
Many of us are sensitive to offers and special offers. While this can be a good thing because it means you’re taking advantage of every opportunity for possible rewards, it can be a challenge to avoid overspending. This is where a prepaid card with a set spending limit comes in handy. You can only spend what you’ve already loaded onto the card, so you won’t run into debt on an impromptu purchase Prepaid Card Facts You Should Know.
You don’t have to worry about missing a payment
While traditional credit cards can be convenient, they can also be a liability. With a prepaid card, you can enjoy the benefits of plastic without the risk of taking on more debt than you can repay. With a prepaid card, you can shop virtually anywhere without worrying about running up a credit card bill and possibly paying late Prepaid Card Facts You Should Know Prepaid Card Facts You Should Know.
Carrying a prepaid card is less stressful
If your prepaid card is stolen, the thief will only have access to the amount loaded on the card and not your entire checking account, as with a debit card. And while most credit cards have zero fraud liability, fraudulent credit card charges can still wreak havoc on your credit Prepaid Card Facts You Should Know.
Disadvantages of prepaid credit cards
Less consumer protection
Prepaid cards have less protection than your average credit card. In 2019, the Consumer Financial Protection Bureau added comprehensive consumer protections for prepaid accounts, including protection in case of error, loss or theft, and stricter rules for issuers to provide clear information about prepaid account fees. While this is a step in the right direction for consumers who already have prepaid cards, this protection doesn’t exactly compare to that of traditional credit cards.
It won’t change your credit score
When you use a prepaid card, you are not borrowing money, so no activity is reported to the three credit bureaus. Prepaid cards don’t offer you the same protections as credit cards, but they can still help you with your credit goals by inspiring financial habits like spending only what you currently have. If your goal is to improve your credit score, you may want to consider becoming an authorized user of someone else’s card or applying for a secured credit card Prepaid Card Facts You Should Know.
Late fees may add up
Before you commit to a prepaid card, be aware of any fees that come with it. Some prepaid cards may charge cardholders fees for cash withdrawals, top-ups, balance checks or even purchases Prepaid Card Facts You Should Know.
Alternatives to prepaid cards
Not everyone is comfortable with the idea of a prepaid card, especially those who want a card with a credit line or a boost to their credit score. However, there are other options that are specifically designed for people with bad or no credit.
For starters, a secured credit card is a solid alternative. Secured credit cards are credit cards that require a cash deposit as collateral. Your credit limit is often equal to the amount of your initial deposit. Consumers with bad credit tend to gravitate toward secured credit cards because they give consumers the opportunity to build credit by practicing good credit habits Prepaid Card Facts You Should Know.
One of the biggest benefits of a secured credit card, especially as a starter card, is that the card issuer reports your credit information to three credit bureaus. This will allow you to build a positive credit history once you start making regular purchases and repaying them on time. These cards tend to be better for your credit than prepaid cards, but there are some downsides to keep in mind. As with most credit cards, be aware of any fees you may face with a secured credit card, such as annual fees or processing fees.
Another option is to apply for an unsecured credit card for consumers with bad credit. Don’t be discouraged if your credit score is bad because there are plenty of credit cards you can apply for without paying a down payment up front Prepaid Card Facts You Should Know.
Keep in mind that every time you apply for a new credit card, a hard inquiry will appear on your credit report, resulting in a temporary decrease in your credit score. That’s why it’s important to research credit cards beforehand and only apply for the card that best suits your financial needs.
There are many reasons to apply for a prepaid card. For example, a prepaid card can help you shop without overspending. But prepaid cards aren’t for everyone—they won’t help you improve your credit score or offer the same consumer protections as credit cards. If you’re trying to rebuild your credit, be sure to apply for the card that best suits your needs Prepaid Card Facts You Should Know.
Correction, February 10, 5:40 p.m. ET: A previous version of this article incorrectly stated that prepaid card activity is generally not reported to the three credit bureaus. It has been updated to reflect that no prepaid cards are reported to the credit bureaus. A previous version of this article also incorrectly stated that your credit limit on a secured credit card is often 50 to 100 percent of your down payment. It has been updated to reflect that a card’s secured credit limits are usually equal to the amount you put down as a security deposit Prepaid Card Facts You Should Know.
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