Check Prepaid Credit Card Terms Carefully

Prepaid

credit cards can be extremely useful tools, allowing consumers

to avoid carrying cash, giving bad credit customers the equivalent

of a MasterCard or Visa, or allowing parents to limit the spending

of their teen or college-age children. In reality, prepaid credit

cards are not credit cards at all, but "stored value"

debit cards that stop the user from spending more than the value

of the card.

The

idea behind prepaid credit cards is great for the consumer.

However, like every product in the credit card industry, prepaid

credit cards are issued by their sponsoring financial institutions

with the goal of creating profit. That means consumers must

pay for the convenience a prepaid credit card provides.

Financial

institutions tie fees to many aspects of card usage, from applications

fees to per-transaction fees to monthly service charges to reload

fees. These fees vary widely throughout the industry, and may

be called different names by different institutions. Therefore,

even more than with standard credit cards, it is important for

prepaid credit card users to read the fine print before signing

up for a card, and to contact the issuing financial institution

if anything is unclear.

Published 09/16/05 (Modified 05/07/12)