The prepaid debit card is a fairly recent invention of the credit card companies, its rise in popularity aided by the tough economic times. Billed as the solution to those with credit too poor to allow them access to a regular credit card, the prepaid cards are loaded with a dollar amount, which in turn becomes their line of credit with the card issuer. The consumer then spends only the amount already loaded, thus avoiding a hefty credit card bill with equally hefty interest charges.
It can be a good solution for those who need help controlling their spending, and avoiding the accrued interest that comes with a regular credit card is a definite bonus. However, the credit card companies must make their cut somewhere, so there will be various fees associated with the use of the card. It also won’t do much to help those trying to rebuild credit, as uses of the prepaid cards are generally not reported to the credit bureaus.
Popular finance guru Suze Orman, in her quest to help her followers with their credit troubles, has established a prepaid card that she believes will help its users strengthen their credit. A key component of this claim is an agreement with TransUnion, one of the three major credit bureaus, to review spending data from the use of Orman’s card to determine if the user is a good risk. However, FICO, the leading credit score used by most lenders when deciding to offer someone a loan, isn’t associated with this. So, as is generally the case with prepaid debit cards, those using Orman’s card won’t see that spending reflected in their FICO score.
Orman puts her stamp on the card by appearing on the issuing bank’s website to remind users to think about purchases before making them and to explain the fees associated with the use of the card, which include a $3 monthly charge and $2 per call to a customer service fee after the first (one free call is allowed per month). There are also fees for loading the card with cash, although direct deposits or transfers will be allowed at no charge.
Those who have reviewed the terms, conditions and fees don’t believe the card is bad; it in fact offers some perks such as credit monitoring, access to credit reports and free use of Allpoint ATM’s. However, it’s still a prepaid debit card, which many experts believe isn’t the way out of credit problems. They instead choose to advocate proper use of a secured credit card by paying off the balance each month and of course, limited use of the card in the amount the consumer can actually afford.