Who Is A Prepaid Credit Card For?

When is a credit card not a credit card? One of the newer innovations in the credit card industry is the anomaly called a 'prepaid credit card'. The more accurate name for this is a 'stored value card', because that's precisely what they are. Though a prepaid credit card usually bears the stamp of one of the major credit card issuers, you can't get credit with it.

That is to say, you can't use a prepaid credit card to make purchases with money you have yet to earn. In blunt terms, when you use a credit card to make a purchase, you are actually borrowing money from the credit card company to pay for your purchase, then repaying it over time. With a prepaid credit card, there is no borrowing involved. Instead, you (or someone else) give money to the credit card company to 'hold' in your name - loading value onto the card. When you swipe your card at the till, the amount of your purchase is deducted from your account balance. You can only make purchases up to the amount of your account balance.

If all that sounds vaguely familiar, it's because it is. In essence, a prepaid credit card is no more than a debit card without a bank account. In practice, though, the card acts just like a credit card at the till. You can swipe it, enter you PIN and be on about your business. And if you run low on your balance, you can load more value - add money - to the card from your bank account, another credit card, by sending a cheque to the company, or by purchasing more value at the till.

If it's no more than a debit card without a bank account, then, who are stored value cards meant for, and of what earthly use are they? Well, for a start, these cards are ideal for the person who doesn't have a bank account or credit card. They allow you to shop online or by telephone, since they're treated just like credit cards. They give you all the flexibility and convenience of a credit card with none of the attendant interest and high cost. Instead, you'll usually pay a small service or processing fee when you load money onto your card.

Stored value cards are also an excellent way for parents to mete out allowances to the children. Because there's no actual credit being rung up, there's no danger of the child running into debt - but because there's a limit to what they can spend, using a prepaid credit card is great practice for observing budget and credit limits on a real credit card in a few years.

Despite the Chip and PIN technology and all the other precautions, making purchases on a credit card can still be risky. Using a prepaid credit card to pay for things online protects you from the losses and headaches that would happen if your credit card details were swiped by an identity or credit card thief, or if your card is stolen. There's no way to access your bank or credit details through it, and the thief can't spend any more than is stored on the card.

Don't make the mistake of thinking that all prepaid credit cards are alike though. As with any other, you should compare credit cards before you decide on one. When you compare credit cards, look for deals that offer you cash back in the form of discounts, and for prepaid credit cards with low fees for adding money to your cards. You'll also want a card that is convenient - if the only way to add money to your card is to go to a shop two cities over, you've not got a very good deal.

When you're looking to apply for a credit card, you'll find everything you need to compare credit cards online at moneyeverything.com. The easy to use tools and comparison charts make finding the right credit card for you a simple task. Trust moneyeverything.com to show you the best deals on credit cards and other financial products.