5 Reasons to Apply for a Prepaid Credit Card

by John Stevenson on November 9, 2010

Prepaid credit cards, also known as secured cards, require the deposit of a certain amount of money before they can be used. This amount is the credit limit which the cardholder cannot surpass with his or her purchases. There are a number of reasons why one should apply for a prepaid card, and here we will enlist the 5 most important of them.

1. Prepaid Credit Cards Guarantee Application Approval

Regardless of how bad the applicant’s credit history is, he or she can rest assured that the application for a prepaid card will always be accepted. This is good news for people who have no previous credit history, or it is so bad that their applications for regular credit cards are constantly turned down.

People with unfavorable credit history are prone to applying for several credit cards at once. However, this strategy is rather unwise for the following reason:  every time an application is placed with a credit card company, the latter will request a credit report from Equifax Canada and/ or TransUnion Canada. And for every report issued, 6 points are subtracted on the average from a person’s credit score. Thus, if an individual with bad credit has applied for 5, 6, or more standard credit cards at the same time, he or she may end up with no approval and significant damage to his credit history (and even worse chances for subsequent approval). This fact gives prepaid cards an advantage because with them, one needs to apply only once to get accepted, thus avoiding additional credit point deduction.

2. Prepaid Credit Cards Help a Person Open up a Credit History

Students, immigrants, and other people who want to start a credit history often find it really hard to do so.

Unwritten, but strictly followed rule of Equifax Canada is that they will not open up a credit history unless a person has at least two accounts of revolving credit (e.g. two credit cards). As one is guaranteed approval for a prepaid credit card, he or she needs to be accepted but for one more card as to get a credit history started.

3. Prepaid Credit Cards Prevent Excessive Spending

Since the purchase power of a prepaid card is restricted by the security fund which the cardholder has deposited in advance, at no point can one spend more money than he or she can afford to. Whatever sum a card holder has in his account, he has to stick to it regardless of the circumstances, which makes the card an ideal antidote to binge shopping. Better yet, one can not incur debts, and companies will never collect interest charges or late payment fees.

4. Prepaid Credit Cards with Low Security Funds Available

Most companies that offer prepaid cards will ask for a security deposit between $500 and $1000. This is not an easy sum to save, especially if one has a family to support. Fortunately, there are credit cards on the market which require as little as $75 for a security deposit and charge small to no fees for later additions to it.

5. Prepaid Credit Cards Offer the Same Conveniences as Standard Credit Cards

Prepaid credit cards can be used in all situations where a credit card is necessary, e.g. to book a flight or hotel room, rent a car, buy groceries, or shop online. Just watch out for hidden fees and charges when signing the contract for your prepaid credit card or it may cost you a fortune.

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