There’s no denying how convenient it is to use a credit card daily. Cardholders can use their cards in stores at home and abroad, they can use them for online shopping, paying utility bills, and more. However, their biggest drawback is all the fees that can easily accumulate if you carry a balance.
You’ll have to face the high-interest fees, then if you miss a credit card payment, you’ll have to pay the late payment fees, if you max out your credit card, your credit score will suffer, etc.
While they can be extremely helpful, credit cards are obviously a huge responsibility. If you don’t feel like you can be a responsible cardholder, you can get almost all the benefits of credit cards with none of their drawbacks with prepaid debit cards.
Prepaid debit cards still require you to use your money wisely, but they’re much easier to handle, and they don’t allow you to go into debt. Let’s take a closer look at these cards.
Overview of the Prepaid Debit Cards
As its name would suggest, to use a prepaid debit card, you’ll first need to load your card with funds. The amount of money you have on your card is the amount of money that will be available for you to spend, and you cannot spend more than you have.
So, why would you choose a prepaid debit card instead of some other type of card?
What are 4 main reasons to get a Prepaid Card?
1. Primarily, to get a prepaid debit card, you don’t need to have a bank account at all. You can get the card from certain retail stores, some issuers, you can order one over the phone, or even online, so there’s no need for you to open a new checking account.
2. Since you don’t need to open a bank account, and you won’t actually be borrowing any money from banks or credit unions, your prepaid debit card won’t have an effect on your credit score.
3. There’s no credit check, so regardless of whether you have any credit history, or whether you have poor credit, you can get a prepaid debit card and take full advantage of it. You don’t need to worry about getting approved.
4. These cards come from the major card networks, so you can use them wherever the network’s accepted. You cannot have a negative balance, so you won’t be charged any late payment fees or interest rates. You can still easily make purchases with your card, withdraw cash from an ATM, reload your card, etc.
Prepaid Debit Card vs Regular Debit Card
Prepaid debit cards and regular debit cards have a lot of similarities. To use either one of them, you’ll need to have an existing balance that you can draw money from.
The difference is, however, that for a prepaid debit card you don’t need a bank account. A regular debit card is connected to your checking account and when you make purchases, the card draws money from said account.
Depending on the type of debit card, your bank may allow you to overdraw from your account, and it’s important to be aware of this. You will have a limit on how much you can overspend with regular debit cards, however, the overdraft fees tend to be very high, and can pile up if you’re not careful.
With prepaid debit cards, you won’t encounter overdraft fees simply because you cannot spend more than what you have on the card. If you attempt to make a purchase that costs more than what you have, the purchase will be denied.
Prepaid Debit Cards vs Credit Cards
Prepaid debit cards and credit cards are completely different, yet they’re often confused for one another simply because the cards themselves look very similar. As mentioned, a prepaid debit card can be taken from any of the major card networks, so it will have the same appearance and logo as credit cards that come from Visa, MasterCard, or the like.
When it comes to credit cards, however, when you use them to make a purchase, you are borrowing money from your credit card issuer. Credit cards are essentially loans, and should always be regarded as such.
When you use your prepaid debit card, you aren’t borrowing money from anyone. You’re using the money that you’ve deposited to your account to make purchases, so it’s just like you’re using your own cash.
Prepaid Credit Cards aka Secured Credit Cards
Prepaid credit cards shouldn’t be confused for prepaid debit cards, as they’re vastly different. Prepaid credit cards are another name for secured credit cards, and they function very differently from prepaid debit cards.
A secured credit card requires you to make a deposit to use your card, this much is true. However, the deposit is there for safety reasons. If you fail to make your credit card payments on time, your card issuer will take your deposit. If you pay off your balance and decide to close the account, you will get your deposit back.
To get a secured credit card, you will have to go through the same application process as you would for a normal credit card. This isn’t required for a prepaid debit card.
Can I get a Prepaid Debit Card with Poor Credit?
Your credit score isn’t even considered when you get your prepaid debit card, so these cards are excellent for those with poor credit.
There is no full credit check, applying for a prepaid debit card doesn’t leave a trace on your credit report, so if you want, you can apply for as many cards as you want, and using your card won’t have an effect on your credit score.
The problem here is that since prepaid debit cards cannot negatively affect your credit score, they cannot affect it positively either.
If you want to start your credit history or rebuild your credit, you won’t be able to do this with a prepaid debit card. Even if you use your card responsibly, this won’t be reported to the credit bureaus, and won’t affect your FICO score at all.
What Are Prepaid Debit Card Fees
Prepaid debit cards are the cheapest type of card that you can hold, but they can still come with some fees. Some of the most common fees you can encounter include, but are not limited to:
A monthly fee (or an annual fee) is commonly paid for having a prepaid debit card. If your card comes with a monthly fee, it doesn’t matter if you use the card in the given month or not, you will have to pay the fee. Certain cards will waive this fee if your salary or other benefits are deposited directly to the card, however. See No Annual Fee Cards.
You might be charged a small fee every time you use your prepaid debit card for making a purchase. Many cards come either with a transaction fee or a monthly fee – they rarely have both of them included.
Balance inquiry fee
You might be charged a small balance inquiry fee if you want to check your balance on an ATM. This is easily avoided, as most cards allow you to check your balance for free online, through email, or through text message.
ATM withdrawal fee
If you withdraw money from your prepaid debit card, you will most likely have to pay the ATM withdrawal fee. This fee will typically be higher if you use an out-of-network ATM. Using an in-network ATM will either be much cheaper, or you won’t have to pay the withdrawal fee at all.
If your card charges a decline fee, you will have to pay it if you attempt to use more money than you have available on your card.
Card replacement fee
While you can typically get your physical prepaid debit card for free, if your card gets lost, stolen, or simply damaged, you will most likely have to pay a fee to get a replacement.
These are just some of the most common fees that you can encounter. To learn exactly which fees you might encounter and how high they are, you will need to check the Pricing and Information section of your prepaid debit card.
Prepaid Debit Card Offers Recap
Prepaid Debit Card FAQs. What People Ask about Prepaid Cards
Unfortunately, just like you cannot damage your credit score with a prepaid debit card, you cannot build it up either. Prepaid debit cards don’t report to the credit bureaus, and since they don’t require you to have a bank account to use them, they won’t show up on your credit reports and won’t be considered when you’re opening a new bank account.
If you have poor credit and want to improve your score, you can consider using secured credit cards as an alternative to prepaid debit cards. You can get approved for a secured credit card easily with poor credit, and responsible usage will help you improve your credit score.
You don’t need to have a good credit score to get a prepaid debit card. When you sign up for a prepaid debit card, there will be no soft credit check, nor full credit check, nor will your FICO score matter at all.
These cards are ideal for those who have little or no credit history, and for those who have a poor credit score. Applying for this card doesn’t leave a trace on the credit report, and you can use it without worrying about damaging your FICO.
Since you will be using the money that you have deposited, you don’t have to worry about overspending, carrying a balance, or paying your card bill on time. A prepaid debit card won’t have an effect on your credit score.
If you want to build or fix your credit you should consider getting a secured card first.
You cannot have a negative balance on your prepaid debit card. While some regular debit cards allow you to overspend to a certain limit, and charge a hefty overdraft fee if you do so, when it comes to prepaid debit cards, you will never be able to spend more money than you have on your account.
These cards aren’t loans – you aren’t borrowing money from a bank or credit union. The only amount that’s available to you is the amount that you’ve loaded onto your card. If you attempt to make a purchase and spend more money than you have, the transaction will be denied, and you will typically be charged a decline fee.
In most cases, you can reload a prepaid card. Some of these cards are somewhat similar to gift cards, and can only be used until you run out of money on them. Once you run out of money, you would need to get a new prepaid debit card.
Most prepaid debit cards are reloadable, however. You will get the number and other details of your card account, so you can reload your account from a local bank, use your PayPal account to reload it, and can even receive your pay or other bonuses directly on your prepaid card.
These cards do come with an expiration date, so you will need to replace your prepaid debit card when it’s expired.
This is one of the advantages that prepaid cards have over cash. If you lose your card that’s loaded with funds, your funds will still be available to you.
You will need to contact your card issuer and let them know that your card has been lost/stolen/damaged, and request a replacement. You will receive a different card number and PIN, so only your new card can be used, and the balance you had on the lost card will be available to you.
Most cards will charge a replacement fee, and this fee differs from card to card. Some prepaid debit cards can be replaced without a fee, but this depends entirely on the card you choose.
Prepaid debit cards belong to some of the major card networks such as Visa, Mastercard, American Express, and others. As long as you have preloaded the card with money, you can use it for shopping at stores and online where they accept these card networks.
You can use your card domestically and abroad if the merchants accept these card networks, but keep in mind that you will be subject to currency conversion if you use your card abroad.
Depending on the card you choose, your card might only be valid in certain stores. A shopping prepaid debit card that you get from a store is typically only for in-store purchases, so you can only use it at the said store chain and at some of its partner locations.
No. Unlike regular debit cards that require you to have a bank or a checking account, prepaid debit cards are used without it. You will typically have to create an online account, and you will receive an account number so that you can load your prepaid debit card with money, but you will not need an actual bank account.
This is one of the strongest advantages of a prepaid debit card, as it makes using a card very easy. You won’t be denied for this card, and as long as you are old enough to use a card, you can get it, no bank account needed.
Yes, you can withdraw money from your prepaid debit card. Since you don’t need a bank account to use the card, however, you cannot withdraw money from a bank. You can use ATMs for cash withdrawals.
Since different ATMs belong to different banks and networks, it’s in your best interest to find an in-network ATM for cash withdrawals. Using out-of-network ATMs is usually more expensive, and you’ll have to pay a higher ATM withdrawal fee. Depending on your card, an in-network ATM will either be cheaper to use with lower withdrawal fees, or it will be free.