The Cons of Expensive Prepaid Credit Cards

Prepaid cards are one of the most expensive con tricks which banks have managed to pull off in recent times, yet millions are signing up to use them. Granted they provide an alternative option to those who are unable to obtain a bank account, and can be convenient for parents to ensure their teens have an emergency access to funds. However for everyday use consumers are simply being charged to use their own money.

Prepaid cards appeal to those with bad credit as they often advertise that they can improve ones credit, yet very few actually report to the credit bureaus. Indeed if they do they can’t accurately report on how you use credit as there is no credit transaction involved when prepaid cards are used: one simply uses ones own money.

There is no debt to credit ratio to report on which is a major part of the Fico score, and unless you use a prepaid card to pay off a credit card bill or a loan instalment then there is little recording to be done. Using prepaid cards to pay your utilities or other regular bills is not reported to credit bureaus. Some cards do report to PRBC which is convenient for those card holders who have registered to use the PRBC Fico expansion scheme.

Prepaid cards advertise guaranteed acceptance no matter how bad ones credit, which considering what a prepaid card actually is makes this advertising a stroke of genius by the banks. After all why would they turn down anyone who is applying to give the bank their own money without receiving interest on it, and then pay to use it? Some even advertise 0% interest as an incentive to purchase them, but again how could anyone possibly be charged interest for spending their own money rather than borrowed funds?

The prepaid cards offered by Bancorp really take the prize for the charges they load onto their cards. The Vision prepaid card carries an imaginative array of fees which include a $6.95 monthly fee; a fee of $4.95 to cardholders who spent less than $1000 on their card the previous month; $1.95 ATM withdrawal fee; and even a cancellation fee of $14.95.

The prepaid Rush card, also from Bancorp, levies some interesting charges too. There is a monthly fee of $9.95, a bill payment fee of $1, and although it offers two free ATM withdrawals a month it then charges $2.50 for additional withdrawals. It does report to PRBC and another credit bureau Lexis Nexis, if cardholders sign up and enrol in the Ruth Path to Credit.

Bancorp do pay $5 for each referral that Rush cardholders bring them and state that “members earn hundreds of thousands of dollars each year for referring their friends.” It’s a pity they didn’t refer their friends to a less expensive alternative.

If you need some form of plastic for convenience and cannot obtain credit, it makes a much sounder choice to opt for a low fee secured credit card which will actually report to all three of the major credit bureaus. This option will enable you to increase your credit score with judicious use of the card, and many issuers of secured cards actually pay interest on your security deposit.

If prepaid cards are used as a choice alternative to credit then try using cash instead. It costs absolutely nothing to use cash and makes far more financial sense.