Right now, trying to read the signals coming from the American economy is like trying to read the signals on your first ever date. You know what you want to happen, but what you’re seeing seems either incomprehensible or contradictory, and you’ve no real idea what it all means. Don’t worry. If you feel like a gauche teenager, imagine what it’s like for professional economists, many of whom only pretend to understand much more than you.

Credit card trends

According to the Federal Reserve’s Quarterly Report on Household Debt and Credit, published this month, the total household debt for all American consumers stood at $11.7 trillion in the second quarter of this year. That’s a scary figure, but it’s down $812 billion from its peak in the third quarter of 2008. And, of course, most of it (74 percent) is made up of mortgage loans, which most people regard as “good” debt.

Credit card debt comprises about six percent of the total, a proportion that has remained fairly consistent over the last few years. That, of course, means that it has shrunk pretty much in line with all debt. However, this isn’t just a reflection of a new prudence on the part of consumers. Much of the reduction is due to credit card companies wiping balances from their books when they pass “uncollectible” accounts to collection agencies. Foreclosures similarly accounted for some of the reduction in mortgage debt.

Those credit card companies were also largely responsible for the considerable drop in open credit accounts. Four million credit cards were withdrawn by issuers or cancelled by customers during the first quarter of 2010, and, by the end of that period, the number of credit card accounts had dropped by 23.2 percent compared with the second quarter of 2008. The last time so few cards were in circulation was a decade ago.

Credit cards and credit use

Overall, reduced debt and the fall in the number of credit cards are probably good things, certainly when it comes to financial solidity. However, they have their downsides. It is hard to see how the recovery can gain momentum until those who can do so begin to borrow and spend more again, thus creating the demand that gives employers the confidence to hire staff and give people raises.

What’s almost certainly bad for the economy is people who can’t afford debt borrowing more. The Fed report says that in the first quarter of 2008, consumers were using only 23 percent of their credit card limits. The same time this year they were using 28 percent. It’s sobering to think how many people who are newly unemployed or working part time are now using their remaining available credit to pay the rent and put food on their tables.

Credit scores and credit utilization

The proportion of your available credit that you actually use forms a significant part of your credit score, and if you’re edging closer to your limit you should probably see how that’s affecting your credit report. Man y services are available to help you monitor your report, not all of which deliver good value. However, three that are worth looking at more closely are (in alphabetical order):

• Equifax Credit Watch Gold With Score Power
• Smart Credit
• Transunion – 3 bureau Credit Monitoring

Credit Card Debt Down–Yet Again

Let’s start with the good news. The Federal Reserve published Friday its latest statistical release about consumer credit. The figures, which relate to June, show that “revolving credit” (nearly all of which is credit card debt) was down again that month, and now stands at $826.5 billion. Out of the last 21 months, according to the Los Angeles Times, this form of debt has fallen 19 times.

Given that the Fed reckons that outstanding revolving credit stood at $958.1 billion in 2008, that means that Americans have paid back about $131.6 billion to credit card companies in two years, right? Wrong. As this column has pointed out previously (and the Philadelphia Inquirer confirmed last month), a large proportion of the reduction is accounted for by “charge offs”, which is what the industry calls debt that it writes off because it’s uncollectible and passes to collection agencies.

In fact, the Inquirer says that, in the first quarter of 2010, about 40 percent of the apparent reductions in credit card balances was actually accounted for by charge offs. And some think that’s a conservative estimate. Still, if you make the assumption (and statisticians are likely to abuse you if you do) that 60 percent of the last two years’ reductions were genuine pay downs, that still means that Americans have paid off their credit cards to the tune of nearly $80 billion.

Credit Reports and Children

At least your young children don’t have to worry about their credit card debt and credit reports, do they? Again, the answer, regrettably, is a qualified Wrong. Because, last week, a number of newspapers covered a story about the growing incidence of people stealing children’s identities, and running up debts in their names.

This grizzly trend is apparently enabled by the current social security number (SSN) system. Apparently, criminal gangs now use a combination of public sources and online trawls to identify SSNs that currently have no credit record attached to them. They can then steal that identity in order to borrow money.

Of course, children’s SSNs generally go unused for at least 16 years, which makes them especially vulnerable to this crime, and the Christian Science Monitor says that seven percent or more of all identity theft cases that are reported affect these youngsters.

If you’re tempted to check your kids’ credit reports, the Monitor cautions that you might be making things even worse. In doing so, you could create a credit file in their names, which may make them even more vulnerable to identity thieves.

Credit Scores and College

What if your son or daughter is off to college, and has a credit card application turned down because of identity theft? Well, the first thing is to report it, and the web sites of both the Identity Theft Resource Center and the Federal Trade Commission provide advice about what to do.

However, it’s likely to take some time to resolve the matter, and during that period, you may have to:

• Issue an authorized card in his or her name on one of your own accounts, which may–depending on the child–involve a leap of faith too far, or
• Find one of the better secured credit cards, which requires a deposit, but could count toward building a credit score while the identity theft is being sorted out, or
• Source a good prepaid credit card, though you need to be careful about high fees with these

Among the best of the last two types of product are:

1. Secured credit cards: Public Savings Bank Secured Card
2. Prepaid cards: The Mango™ MasterCard® Prepaid Card

Credit Score Bad? You’re Not Alone

If your credit report has taken a hit recently, you probably feel bad about it. That’s understandable. But you may find some small consolation in the knowledge that you’re far from alone. Last month, FICO Inc. published figures that show that 25.5 percent of all consumers have a credit score of 599 or below, a level that is likely to prevent them acquiring a mainstream credit card, mortgage, or personal loan. Yep, that’s one in four Americans, a total of almost 43.4 million people.

Of course, there’s more to life than a pristine credit report (health, family, happiness, love…the list is endless), but modern life is tough without the advantages that a good credit score brings. Have you ever tried booking a hotel room or renting a car without a credit card? Worse, some employers now routinely carry out credit checks for new hires and existing employees, so your job could be at stake.

So how do you go about rebuilding your score?

Secured Credit Card–A Useful Credit-Building Tool

Unsecured credit cards are probably the most common form of card. You’re given what amounts to a line of credit and the lender takes a chance on your defaulting. As their name implies, secured credit cards are very different. That’s because there’s no risk to the lender–your credit limit is the amount you deposit in your account–up-front.

Yes, that sounds a lot like a prepaid card, but it is a little different. When Gerri Detweiler, a personal finance advisor, appeared on Fox recently, she explained that the sum you pay up-front is closer to the security deposit you pay a landlord when you move into a rented home. You get it back when you close the account or when the issuer migrates you to a normal credit card.

What’s important about a secured credit card is that the issuer normally reports your account to credit bureaus, so–if you use your account responsibly–you are able to rebuild your credit score.

Choosing a Secured Credit Card

Even though they represent little or no risk to the issuer, many secured credit cards carry high fees. And a few of them appear to be little more than scams designed to fleece the already vulnerable. So take care when choosing one. Here are four golden rules to follow:

1. Make sure you understand all the card’s fees and costs before you commit yourself.
2. Check that the issuer is FDIC insured (it has your money, and you don’t want to take the hit if it goes bust).
3. Choose a reputable lender, and Google it to make sure other customers haven’t been gouged.
4. Ensure that your account will be reported to all three of the big credit bureaus.

Secured Credit Card Use

The best practice rules for secured credit card use are the same as those for ordinary cards–always pay on time and always try to pay off your balance in full each month.

And certainly make sure you don’t find yourself carrying forward a balance that represents a large proportion of your credit limit. The money you’re using may be yours, but the credit bureaus don’t differentiate between secured and unsecured credit limits, and your score can suffer if you use a high proportion of your available credit (it’s called your “credit utilization ratio”). Earlier this year, a Boston Globe money expert recommended avoiding carrying forward a balance that’s greater than 30 percent of your credit limit.

If you’re thinking of applying for a secured card, you could start by exploring these:

• Public Savings Bank Secured Card
• New Millennium Bank Secured Gold Visa® or Mastercard®
• Applied Bank® Secured Visa® Credit Card

Credit Card Regulation–a Debate

Back before the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 was passed, consumer groups and financial industry lobbyists disagreed about the new law’s likely outcomes. Those on the industry side argued that the legislation would dam many of the companies’ revenue streams and force them to increase credit card rates and extend annual fees.

And, of course, to some extent they were right. However, a new report, published today by Pew Trusts, suggests that many of the more apocalyptic predictions have not come to pass. Overall, the impact of the new credit card regulation structure has been positive.

Credit Card Rates

Pew says that advertised credit card rates for people with good credit scores have risen since the law was passed, but that the rate of increase has recently declined. Between December 2008 and July 2009, they jumped 23 percent, but between July 2009 and March 2010 they climbed by only six percent.

Those trends were reversed for people with poor credit scores, with rates increasing by 13 percent in that first period and 17 percent in the second.

It’s difficult to assess how much of these rate increases is a result of the Credit CARD Act, and how much is a response to the losses that credit card companies sustained as a result of the economic downturn.

Credit Card Fees

The story for credit card fees is also mixed, according to Pew. For example, fewer (yes, fewer) cards issued by banks had annual fees in March 2010 (14 percent) than in July 2009 (15 percent), but those that did have fees charged nearly 20 percent more.

Meanwhile, overlimit fees fell away dramatically. Back in July 2009, 80 percent of the credit cards that Pew surveyed carried these fees, but that number had dropped to 25 percent by March 2010. The average amount charged for overlimit and late payment penalties ($39) has remained unchanged, but is expected to drop by August when new Federal Reserve regulations that limit them come into effect.

Balance Transfer Credit Cards

By 2009, Pew says, 88 percent of the balance transfer credit cards it surveyed charged fees for those transfers. In March 2010, 10 of the 12 largest bank-owned credit card companies were charging such fees on 94 percent of their cards. And almost all of the companies that levied a fee imposed a minimum amount.

The rate at which balance transfer fees were levied also rose, from a median of three percent in July 2009 to four percent by March this year. Of course, the fact that those are “medians” means that some are lower and some are higher, and Discover seems especially good when it comes to balance transfer fees.

Indeed, one of its products, the Discover Open Road card currently has a zero percent balance transfer fee, while at least two others (Escape by Discover Card and Miles by Discover® Card) are a full quarter cheaper than the current median, at three percent.

Credit Card Regulation–Pew’s Conclusions

The Pew report’s opening paragraph includes a couple of sentences that pretty much sum up its conclusions:

The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 was intended to create a fairer and more transparent marketplace, and initial indicators suggest that it is meeting its goals. One recent survey showed that nearly three in four American credit card holders agreed that their accounts are better off today than they were prior to passage of the new law.

Credit Cards, Debit Cards, and Prepaid

Right from the start, the people who run credit card companies recognized that so-called “prepaid credit cards” were not credit cards at all. That’s obvious. If you’ve already paid for something before you buy it, there’s no credit involved. The phrase is an oxymoron.

What was needed, obviously, was a snappy, consumer-friendly name for the cards that people would instantly love and want to use. So the marketing geniuses in the credit card companies had a long, hard think, and–after much deliberation–came up with…”Network Branded Prepaid Card.” Just trips off the tongue, doesn’t it?

No surprise, then, that so many people still refer to them as prepaid credit cards.

Prepaid Credit Card Use to Triple?

On Monday, MasterCard published a report that it commissioned from the Boston Consulting Group. This forecast that prepaid credit card use would more than triple between 2009–when its dollar value was $120.2 billion–and 2017 when it is predicted to be worth more than $440 billion.

The report’s authors expect the U.S. to retain its global lead in the sector. In fact, they say that, in 2017, America is likely to account for 53 percent of the world’s prepaid credit card use, which represents a bigger share than double the next six biggest national markets put together.

Why the Jump?

Please say it’s not because so many Americans will have terrible credit scores by then and won’t be eligible for mainstream credit cards.

Unfortunately, that may be partly true, but more new research–published yesterday by Mintel–suggests that consumers’ disillusionment with banks could be at least as important a factor as banks’ disillusionment with individual consumers. Mintel’s press release said:

…19% of respondents overall stated that they would be interested in using prepaid cards to pay bills, rather than a banking account. More importantly, 25% of households earning more than $100K per year, the more profitable and desirable customers for banks, agreed that they would be interested in using prepaid cards. Their main motivation was to avoid overdraft and/or other types of banking fees.

Prepaid Credit Card Terms–a Warning

About nine months ago, the New York Times ran a feature that warned about excessive fees contained in the small print of some issuers’ prepaid credit card terms and conditions. It found wide variations between the amounts levied for all charges, including:

• Application fees
• Monthly maintenance fees
• ATM withdrawal fees
• ATM balance enquiry fees
• Inactivity fees
• Purchase fees
• Fees for calls to customer service

In fact, the Times found that at least one card had up to 24 different fees.

Prepaid Credit Card Applications

Before you sign a prepaid credit card application, remember two of the golden rules for choosing all cards:

1. Make sure you understand all the fees and other charges before you commit yourself
2. Pick the card that is cheapest for your particular lifestyle

So, for example, if you make a lot of ATM withdrawals, eliminate cards with high ATM fees.

Pick a Card

Some cards have been tailored to appeal to particular groups of consumers. For example, Current by Discover Teen Prepaid Debit Card could well suit a young person.

The ACE Visa Prepaid Debit Card has a handy option where you can choose to pay a monthly fee of $9.95 instead of an individual transaction fee on each of your PIN and signature purchases. This could appeal if you mainly use your cards to buy things in stores.

Meanwhile, The Mango™ MasterCard® Prepaid Card has very few fees at all (check them out on this website), and even waives its $5 monthly maintenance fee providing you deposit at least $500 a month. For many, this may well be a “best buy.”

Credit Card Rewards that Make You Work

Susan Stellin wrote a heart-felt piece in the New York Times last week. She’d been a loyal user of an airline-branded credit card for some time, but had become increasingly frustrated by the growing number of hoops she was having to jump through in order to redeem her miles. So she changed credit cards.

She wasn’t alone with her problem. Many frequent fliers have found that being tied to their chosen airline has its drawbacks, especially as many fleets practise “capacity control,” which limits the number of “free” seats available on any given flight. This can make booking a trip on a popular route at a convenient time challenging.

Of course, this isn’t to say that everyone should trade in their airline-branded credit cards. If your flying habits mean that your existing card works for you, then by all means stick with it. And remember that many carriers’ cards offer other benefits (access to lounges, upgrades, no-cost insurance, a free checked bag…) that you should factor into the equation.

Credit Scores Can Be Affected

Another reason to think twice before changing a credit card is the impact it could have on your credit score. According to FICO®, the people behind the most widely used credit scoring system, your score could be damaged if you apply for too much new credit or open too many new accounts in quick succession.

Of course, one new credit card application is unlikely to be much of a problem. There’s a second reason to take care when changing cards. Credit scores are sensitive to the proportion of your available credit that you actually use. And, if you trade in a card with a $20,000 limit for one that offers $10,000, your “credit utilization ratio” can suffer.

To be clear, none of this should stop most people from changing cards, and you should only consider not doing so if you’ve recently made a number of other credit applications and/or are using a large proportion of your available credit.

Travel Credit Card Rewards That Really Reward

Susan Stellin’s Times feature mentioned a number of travel related credit card rewards programs that are particularly hot at the moment. Here are a couple of her tips.

The Starwood Preferred Guest® Credit Card from American Express has won a number of awards recently, including Flyertalk.com’s “Best Travel Card in the Americas.” And it’s certainly the sort of deal that could suit many people. You can redeem points for free nights at 940+ Starwood hotels and resorts in 93 countries, or for flights on hundreds of airlines. And the card’s website claims that there are no blackout dates. There’s also a corporate version of the card, the Starwood Preferred Guest® Business Credit Card from American Express OPEN.

The Times also mentions the Chase Sapphire Card. You get a point for every dollar you spend on the card, which you can redeem for travel on any airline–or you can opt for gift cards, merchandise, cash back, and so on. And there’s no annual fee.

It takes a little effort to track down the card that best matches your lifestyle and needs. But failing to do so can cost you dearly–in stress as well as dollars.

Credit Scores–an Important Change

Wednesday, the House approved the new financial regulatory bill that came out of conference last week. Assuming the Senate also votes it through, a whole new wave of credit card regulation should soon be taking effect.

The bill, of course, covers much more than just credit cards, and one small corner of it contains an important change concerning credit scores. If the legislation is passed, anyone who is turned down for any form of credit, or who receives a less attractive deal (for example, by being offered worse mortgage, loan, or credit card rates), because of a poor credit score should be able to legally demand to see that score.

In fact, there’s nothing to stop you from asking for your credit score even if a loan or credit card application is approved, and you like the deal you’ve been offered. The lender may not be legally obliged to provide it, but many may be happy to oblige.

Credit Reports and Scores–Why They’re Critical

Of course, someone’s credit score and report are likely to determine how good a deal (if any) that person can get on mortgages, loans, and credit cards. But they can be even more important than that.

Yesterday, an Oregon law came into force that stops employers in the state from using credit scores and reports as a factor in any decision to hire, suspend, demote, or fire an employee unless the company can show that the score is directly relevant to the job in question. The law addressed a nationwide problem–some employers routinely (and often unfairly) use credit histories as a way of filtering job applicants and punishing existing employees.

And the situation could become even more critical over here if the U.S. government picks up on an experiment that the British are currently undertaking. The U.K. government has, according to this morning’s Independent, asked a credit bureau to use credit histories to determine whether those in receipt of means-tested state benefits are living an appropriate lifestyle. So, for example, a person who receives housing benefits (has their rent paid) and also has a cable or satellite television subscription could be flagged as someone who may have more resources than they’re declaring, and might thus be cheating the system.

Problems with Credit Reports and Scores

Campaigners in the UK and consumer advocates over here point to the fact that all too many credit reports contain material inaccuracies. John Watts, of the Watts Law Group of Birmingham, AL, said last week that he has recently had several clients whose credit reports contained false information.

Mr. Watts, an attorney with a specialization in debt matters, advises that anyone in a similar position should immediately write to the credit reporting agency–copying the creditor that supplied the information–informing the creditor that the entry is wrong, and giving detailed, precise, and specific reasons in support of that assertion. He goes on:

And if they don’t treat you right? Well, then if you sue them they will be in a position where a judge and jury will be wondering why they mistreated you after you gave them detailed information to show that the company was wrong. In other words – after your precise warning/dispute/request to them.

Making the Most of Stellar Credit Scores

If you’ve been clever enough–or lucky enough–to have kept your credit score at the very top end of the scale, then you should take advantage of your privileged position. Many American Express charge cards and credit cards offer exceptionally good deals for those with exceptionally good credit reports.

And Simmons Bank similarly specializes in catering to the needs of the financially secure. The Simmons Bank Platinum Visa card, for example, currently has a 7.25% variable rate, no annual fee, no balance transfer fee, free travel accident coverage, and free car rental loss/damage waiver.

Low credit card rates are a hallmark of Simmons products, and the Simmons First Visa Platinum Travel Rewards card has a 9.25% variable rate. It has many of the same characteristics as the Platinum Visa card, but also has a credit card rewards program that offers one point a dollar. You can redeem points for free travel on all U.S. airlines.

Credit Score Tightening

Yesterday, TransUnion, one of the big-three credit bureaus, unveiled an enhanced form of credit score that could make it more difficult for some Americans to obtain credit cards. According to TransUnion, credit bureaus traditionally calculate credit scores using four main forms of historical data:

1. Past delinquencies
2. History of responsible use
3. Debt level
4. Utilization (the proportion of your credit limits that you actually use)

However, the company is now able to offer–in partnership with ID Analytics–a fifth dimension based on people’s “stability.” And it claims that this additional perspective can, in some circumstances, reduce bad credit decisions by up to 46%.

Credit Card Debt Problems Down Again

Also yesterday, Moody’s Investor Services published its monthly survey of credit card charge-offs, which is industry jargon for the balances that credit card companies write off because they think the debts have become noncollectable. That doesn’t, of course, mean that nobody will try to retrieve the money; anyone whose balance is charged off should expect to hear fairly soon from a collection agency.

The first bit of good news is that Moody’s says that charge-offs on credit cards in May fell for the second month in a row. Jeff Hibbs, an analyst with Moody’s, says that the company believes that “…credit card charge-offs have passed their peak levels of this credit cycle.”

Credit Card News–Things Are Getting Even Better

The second piece of cheerful credit card news to arise from the Moody’s report concerns delinquencies, which are overdue payments on balances that are yet to be written off. In May, these fell to their lowest level since November 2008. Early stage delinquencies (accounts overdue by 30-59 days) were even healthier, and the company says: “The rate is approaching its historically low ranges of 2006-7.”

All of this suggests that fewer Americans are getting into trouble over credit card debt. And that has to be a welcome thought for card holders, credit card companies, and anyone who cares about the health of the U.S. economy as a whole.

Prepaid Credit Card Swipe Fees to Be Unregulated?

Regular readers may recall that legislators on Capitol Hill are currently deciding whether to regulate “swipe” (or “interchange”) fees, which is the cut taken by credit card companies and payment networks every time a merchant swipes a card. A House-Senate conference is currently hammering out the details, but it appears that lobbyists have won a concession over plans to limit swipe fees on prepaid credit cards–as they’re oxymoronically called.

Earlier today, the Washington Post reported that the conference had decided not to regulate these fees, mainly because to do so could harm poor users who often receive state benefits through fee revenue. If swipe fee revenues are reduced, issuers might make up the difference with higher fees for users.

Credit Card Use Without the Credit

As discussed in previous columns, prepaid credit card use can prove expensive because they often have high fees. However, if chosen with care, prepaid cards can provide a convenient payment method for those for whom traditional credit cards are not appropriate.

One such group is teenagers, and Discover offers a useful product that’s tailored for the young, the Current by Discover Teen Prepaid Debit Card. Other groups include those who cannot–or do not wish to–access mainstream cards. People in that position could check out the ACE Visa Prepaid Debit Card or The Mango™ MasterCard® Prepaid Card.

Credit Card Debt: the Helpers Who Harm

When you’re up to your eyes in credit card debt, any port looks welcome in the storm. But Friday’s New York Times told harrowing stories of those who, in desperation, had turned to businesses who promised to help them only to find themselves way worse off.

The airwaves, print media, and Internet are full of ads from companies offering to free you from credit card debt. And, the Times says, last year 425,000 Americans asked these firms for help with a total of about $11.7 billion in card balances. But there’s a good reason why, in the last six years, 21 states have brought 128 enforcement actions against debt settlement companies–all too often these are predatory scams.

And countless consumers have found themselves both poorer and in deeper trouble–sometimes bankruptcy–as a result of being too trusting when it comes to those who promise help eradicating the balances on their credit cards.

Credit Cards After Collapse of Credit Scores

Those who are already beyond the “help” of debt settlement companies often find that their damaged credit score means they can no longer enjoy the benefits of traditional credit card use. But they still need a convenient payment instrument, so they turn to prepaid credit cards.

Previous editions of this column have recommended a number of pre-paid cards (which can often be used to repair credit scores), including the ACE Visa Prepaid Debit Card, the ACE Pink Visa Prepaid Debit Card, and The Mango™ MasterCard® Prepaid Card.

Prepaid Cards to Be Exempt from Swipe Fees?

But, last week, the Center for Financial Services Innovation (CSFI) wrote to Rep. Barney Frank (D-MA) and Senator Christopher J. Dodd (D-CT), who are the chairmen of the house and senate committees that supervise financial services. The CFSI argued that current proposals to limit so-called “swipe” or “interchange” fees (the amount of a transaction taken from merchants by credit card companies and networks every time a card is swiped) could “substantially” harm the consumers who use these products. The letter continued:

We believe an explicit fee limit on interchange will effectively prevent millions of low- and moderate-income households from accessing a financial product that has emerged to enable poor, underbanked families to access the financial mainstream.

Credit Card Rewards Programs–Cash-Back Cards

If you’re in happier financial circumstances, you may be more interested in another New York Times piece, published just hours after last Monday’s edition of this column. The Times looked at the best cash-back credit card rewards programs, and confirmed the attractiveness of one of the picks featured here earlier in the day. It said:

You may also want to look at Blue Cash® from American Express, which after the first $6,500 of purchases, pays 5 percent for certain “everyday purchases” and 1.25 percent for all other purchases.

That’s a great deal, so it’s getting plenty of recommendations.

Credit Card Debt–Moving Forward

The last edition of this column provided some advice for those who are struggling with credit card debt. It was directed toward people who still have some hope of digging themselves out of their hole, but ended up suggesting a way forward for those who’d hit bottom, and were now seeking ways to rebuild their credit scores.

It recommended signing up for a secured credit card, such as the Public Savings Bank Secured Card, the Applied Bank® Secured Visa® Credit Card, or the New Millennium Bank Secured Gold Visa® or Mastercard®. Secured credit cards usually report your account activity to the big 3 credit bureaus (make sure that the one you pick reports to all three) so you have an opportunity to repair the damage to your credit score.

Credit Card Use Without the Credit

But the problem with secured credit cards is you have to lodge an upfront deposit with whichever of the credit card companies you choose. Hence the “secured” bit. And many people who’ve recently had debt problems struggle to find spare cash for such a deposit.

They may find it easier to go for a prepaid credit card. You don’t need a deposit for these, and you can spend money that you credit to the card as soon as it shows up on your account. You don’t get to fix your credit report or score, and you don’t get to spend any money that you don’t have, but you do receive many of the convenient payment services (though not for car rentals and hotel rooms) that cards issued by mainstream credit card companies provide.

Services Improving All the Time

Indeed, the facilities offered by prepaid credit cards are improving all the time. Just yesterday, MasterCard announced a new bill payment service that it plans to introduce for those with prepaid cards that carry its branding. According to the company’s press release: “…the service enables delivery of electronic bill payments to more than 6,000 national and regional U.S. merchants via MasterCard RPPS – the largest online database of billers available…”

Read Prepaid Credit Card Terms Carefully

It really is important to read prepaid credit card terms and conditions carefully before you sign an agreement. Last year, the New York Times ran a feature warning that some cards come with fees hidden in the small print that can make them extremely expensive to use.

The trick is to understand how you’re likely to want to use your card, and then find one that suits your personal circumstances. Three that are well worth considering are:

• ACE Visa Prepaid Debit Card
• The MangoTM MasterCard® Prepaid Card
• ACE Pink Visa Prepaid Debit Card