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Prepaid Card
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A prepaid card is not linked to a bank account or a credit union share draft account. Instead, you are paying the money you placed in the prepaid card account in advance. This can also be called as “loading money onto the card”.

Prepaid Card

You load these cards with cash when you first buy them and recharge them up when they run out just like a pay-as-you-go mobile. They are not a credit card so you can’t run up debts on them. They are good for teenagers, people who are scared their spending will run away with them, and those who don’t have a bank account.

Prepaid cards can also be used to shop online. Since there’s no credit facility as a rule if your card number is nicked by fraudsters scamming you on a dodgy website the damage is limited to however much money you have on the card or until you realize what’s happened and ask the prepaid card company to block your card.

Since you can’t generally use them to borrow, they are good for budgeting and you won’t be credit checked when you apply for one. For this reason, you can have as many as you want in your wallet.

Prepaid Card Approval

Prepaid credit cards are also known as secured credit cards. They require the same credit application process as a standard credit card. These cards can be useful for borrowers seeking to establish credit or improve their credit score. Secured borrowers have generally considered the higher risk to lenders because they do not have an extensive credit history to base a credit decision on or their credit score may be low due to past delinquencies. Secured credit card issuers generally allow credit approvals for a wider range of borrowers because the card is secured with an initial collateral payment.

If a borrower is approved for a prepaid credit card, the terms of the credit card are contingent on a collateral payment or security deposit. Many prepaid credit card issuers will approve borrowers with a security deposit. Once the collateral payment is made, the card is issued, and the borrower can use it in transactions for payments up to the credit limit. A secured credit card issues monthly statements require borrowers to make monthly payments and report payment history to credit agencies. A borrower is required to make monthly payments outside of the funds initially used to secure the card. An issuer may report delinquencies to credit agencies up to a specified time before choosing to use the secured funds for payment which in some cases can negatively affect a borrower if they are delinquent.

Secured credit card issuers may offer varying credit limits against secured collateral. Some issuers may only offer borrowers the collateral payment limit while others may offer twice the limit. Credit card issuers may also increase the credit limit for the borrower over the life of the relationship. In some cases, credit issuers may credit the collateral to the credit card after a prolonged period; however, most often borrowers are typically only rewarded with credit limit increases.