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Prepaid Credit Cards

Prepaid Credit Cards: A boon to people with bad credit
Prepaid credit cards can be a great help to people who are suffering from delinquent accounts and poor credit rating. While they work pretty much the same way as a regular checking or savings account, they have many more benefits that make them suitable for a person in debt.

How does it work?
A prepaid credit card works on the same fundamental principles as a debit card or a savings account. You basically need to pay the credit card company an upfront fee. Then you can start depositing the money with the bank. After this you are issued a prepaid credit card. You can use this card to book hotel rooms or rent cars. Once you have exhausted the amount deposited, you will need to pay some more fees. Then you can deposit some more money in the account.

Advantages of prepaid credit cards
A prepaid credit card is great for people with bad credit. People who suffer from existing debts usually have a hard time qualifying for regular credit cards. They are usually turned down by credit card companies because of having too much outstanding balances and a poor credit score. While they do not qualify for a regular credit card, they can easily get a prepaid credit card. This card is great because there is no interest involved. It also allows you to make a deposit into the account every month. Since it is your own money, there is no hassle of repaying credit taken. Besides, such prepaid cards also allow you to rent cars and book hotel rooms – a benefit not offered by the regular debit card.

Drawbacks of a prepaid credit card
While prepaid credit cards do seem to work well with people having bad credit, they often have their own set of disadvantages.

You need to pay a fee every time you deposit money into the prepaid account. This can work out to be expensive in the long run.
If you want to purchase an expensive item that needs to be paid off in installments, a prepaid card cannot be used for such purchases. The reason being that businesses are apprehensive of selling items to people with a prepaid credit card.
Most of the credit card companies that offer prepaid credit cards do not report payment activity to the credit bureaus. This can really backfire on people with bad debt. Most people having bad credit will try to consolidate their debts and improve their credit rating. On receiving a prepaid credit card, they’ll try their best to pay off balances. However if this improvement in payment activity is never reported to the credit bureaus, it won’t have any effect on improving credit ratings.
Many of the so-called ‘free’ prepaid cards actually fleece customers during ATM transactions, in their monthly fees and loading charges as well. This can really eat into the incomes of people with bad credit.

Things to look out for

Many of the prepaid cards actually have a catch to them. Some will promise you that you’ve been guaranteed a prepaid credit card. Others might want to get out a lot of your personal information – things like SSN, driver’s license, passport number, date of birth etc. Never give these out as you risk the danger of being thrown open to malicious attacks using your account. There’s another drawback too. Since you’re depositing money into the account every month, there may be occasions where there’s a tiny amount left in the account – an amount that cannot be used for any purchase. You must be prepared to let that go! That’s a sad thing because it’s your own hard earned money. Therefore be careful with prepaid credit cards – use them judiciously and you’ll never go wrong!

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CREDIT CARD TYPES

Choosing the credit card that's best for your needs and situation starts with knowing what options are available to you. The following list details the most common credit cards available:

	Balance transfer credit cards - Balance transfers are a way of transferring outstanding balances from existing credit cards to another card that offers a lower interest rate. For example, if you your have a high annual percentage rate (APR) credit card with a significant outstanding balance, you can transfer the balance to another card with a lower rate or even one offer zero interest. Typically these cards offer low balance transfer rates for a specified period of time allowing you to save hundreds (or even thousands) of dollars in monthly interest charges.
	Low-interest credit cards - These cards offer a low introductory annual percentage rate (APR) for a promotional period, after which they can change to a higher rate or a fixed-rate. If you plan on making a large purchase, it's a good idea to pick up a low-interest credit card to take advantage of the savings on interest during the introductory period.
	Cash rebate credit cards - Cash rebate cards accumulate "points" for1 every purchase you make using the card. Most cash reward cards award a point based off 1% of the purchase total, excluding interest and finance charges. For example, if you make a purchase for $1,000 the credit card will award you with 10 points (or, $10.00). These cards are great for loyal customers who make payments on-time every month.
	Reward credit cards - Reward credit cards are similar to cash rebate credit cards, but differ in that they offer various forms of "rewards" for the purchases you make. For example, you can accumulate rewards for frequent-flyer-miles, free magazine subscriptions, and even hotel and travel discounts. Ideal for those who enjoy getting something for free from their credit cards.
	Travel credit cards - Travel credit cards are ideal for the frequent flyer who travels the globe on a frequent basis. These cards accumulate significant reward points every time you make a travel-related purchase. You can gain discounted airline tickets, rent cards for free, and even get discounted hotel rates!
	Pre-paid credit cards - Pre-paid credit cards are ideal for those who are on a tight budget and don't want to fall prey to the financial pitfalls associated with standard credit cards. They work similar to gift certificates or debit cards. You deposit money into the card and then use the card to make purchases as you would a typical credit card.
	Secured credit cards - Secured credit cards are ideal for people with poor or no credit. They work on a collateral system, where you put up something of value against the debt on the card.