by Katerina Nikolas

Created on: July 27, 2010   Last Updated: October 27, 2010

Those who have been turned down in their attempts to obtain credit cards will be attracted to the advertisement of ‘100% approval’ and those with no credit or bad credit will like the ‘no credit check’ aspect of prepaid debit and credit cards. The reality is of course that the term pre paid credit card is an oxymoron as you can’t obtain credit except by borrowing. Cards are called prepaid credit cards as banks hope that the allure of credit cards is still enticing to a large sector of society.

Anyone who has ever paid an overdraft fee or been charged for going overdrawn on their debit card will love the advertisements which proclaim ‘no overdraft fees’ and ‘no over limit fees’. Those who have been stung by credit card interest will be attracted to the notices which state ‘no interest charges ever’ and ‘no penalty fees’. Many are willing to pay to use prepaid cards whilst they may object to an annual fee on a credit card.

The advertising which draws people in to prepaid debit and credit cards may sound attractive but it is simply stating the obvious. After all how can anyone possibly go overdrawn on a card which is preloaded with cash and has a set limit on your spending, or be charged interest on using your own money? No doubt the latter point will be solved by the banks at some point.

Lots of people who have had problems with credit like the fact that pre paid cards do not report to the credit bureaus. What can they report after all except that you are using your own money? However there are several prepaid cards on the market which do incorporate a credit building facility which makes them a viable option for those who are trying to establish a credit history but are unable to do so by traditional means such as a credit card.

Approximately 25% of the American population has never used credit, yet they manage their finances just fine. They pay rent, utility bills and other bills which crop up on a regular basis in a timely fashion, without having anything adverse recorded against them. However by not using credit they also have nothing positive recorded and thus have no credit history which makes it very difficult for them when they do want to start using credit, take a traditional loan, or apply for a mortgage.

Some prepaid cards do report activity on the prepaid cards to a credit bureau, most typically PCBR, the ‘fourth’ credit bureau. Usually card users will need to establish an online bill paying system linked to the card to qualify, but then regular payment of bills will be recorded with PCBR. This can help the user to establish a credit rating which may be helpful in obtaining a mortgage.

Currently Ready Debit Visa prepaid cards, Eufora prepaid cards, and Account Now prepaid cards, all offer this service. However the majority of prepaid card users will find no credit rating benefit to using prepaid cards. If the intent is to rebuild or establish a credit history then a secured card would be a much better option if traditional unsecured cards are not a possibility.

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