You probably see them all the time at gas stations or advertised as a solution for people with bad credit. Prepaid credit cards act just like a regular credit card, except unlike a normal credit card there is no line of credit behind the plastic.

Essentially, prepaid credit cards are debit cards.

There are two main differences between prepaid credit cards regular cards:

• Pay as you go - With a prepaid credit card you have a fixed amount of money you can use. Since there is no line of credit, you don’t have to worry about paying back any debt.
• No credit reporting - Since prepaid cards are not a line of credit, no reporting will be made to any credit union. this can be great if you need to watch your budget, but it’s horrible if you’re trying to rebuild your credit score.

Since prepaid credit cards don’t have any line of credit attached to them only certain people will actually want to use them:

• Banks Without Debit Cards - People who have accounts at banks that do not provide a free debit card with their accounts often need a way to carry larger sums of money without carrying around lots of legal tender. A prepaid credit card is the perfect way to transfer this money around.
• Children and Students - Many parents today will give their children a prepaid credit card for them to use as they see fit. Children can benefit from this by having their allowance placed on the card, while students - especially college students - can benefit by being able to have the card refilled when needed.

Tags: prepaid credit card, debit cards, personal finance