What do you mean by a ‘pre-paid credit card’?
Pre-paid credit cards are another very popular breed of credit cards. Pre-paid credit cards, as their name suggests, are pre-paid. Well, they are pre-paid for the credit card supplier, really. Pre-paid credit cards require you to open an account with the credit card supplier and maintain some cash balance in that account. This cash balance acts as a security for the supplier of pre-paid credit card. Your credit limit is dependent on the amount you hold in the account that you have started with the supplier of pre-paid credit card. This is generally between 50 to 100% of your account balance. So in that sense, pre-paid credit cards are not really credit cards (since they don’t offer you any credit really). For this reason, the pre-paid credit cards are sometimes also referred as debit cards.
Why is the concept of pre-paid credit cards so important?
As we know, credit card debt is a raging problem which is caused by improper usage of credit cards. Such people end up spoiling their credit rating to an extent where they cannot get another unpre-paid credit card (that is what we call the commonly used credit cards). Even after they have paid off their dues and cleared their debt, their credit rating still haunts them. For such people, pre-paid credit cards are a boon. Pre-paid credit cards present them with an opportunity to not only get a credit card in the first place but also to improve their credit rating by using the pre-paid credit card in a disciplined way (paying their dues in time, controlled spending, utilizing a maximum of 70% credit limit etc etc). As they continue with these good habits, their credit rating gradually improves over a period of time. Hence pre-paid credit cards provide them with the means of rectifying their mistakes (credit rating).
It’s not just the people with bad credit rating who go for pre-paid credit cards. Some people go for pre-paid credit cards because they don’t want to bother themselves with the bills etc for credit cards. They don’t like to even fill-up application forms for unpre-paid credit cards.
Then there are some who just don’t like to borrow money (even if it means borrowing from a credit card supplier by using their credit card). However, such people are very rare to find.
Some people just go for pre-paid credit cards because they have heard a lot of horrifying stories on credit card debt – maybe someone from their family or one of their friends was devastated by credit card debt and they don’t want to repeat the mistake. So they decide to go for a pre-paid credit card.
Whatever be the reason for going for it, the pre-paid credit cards are surely popular too.
Popularity: 30%