You can buy prepaid debit cards at supermarkets, convenience stores, and many other outlets, as well as directly from the companies that issue them. Since there’s no credit involved—you can only spend the money you put on the card—there’s no credit check required to get one. While a poor credit history doesn’t hinder your chances of obtaining a prepaid card, having one also doesn’t help you improve your credit score.
You load cash onto your card, either at an ATM or a participating store or through direct deposit. Prepaid cards have an account and routing numbers, which can make it possible to arrange for direct deposit of your paycheck or government benefits.
After that, you use your card much the same as you would a regular debit or credit card. You can make in-store and online purchases, pay bills, or withdraw cash from an ATM. Many of the companies that offer these cards have apps you can use to keep track of your balance, review your transactions, and transfer funds.
Once your balance is depleted, or at any other time you wish, you can reload the card with additional money.
Unlike a regular debit card, you don’t need a bank account to have a prepaid debit card. For that reason, these cards are widely used by unbanked adults, who either can’t get or don’t want a traditional bank account but sometimes need an alternative to paying with cash. With cash-free transactions becoming ever more ubiquitous, it is difficult to avoid carrying some kind of card today.
Disadvantages of Prepaid Cards
While they can be useful in the right circumstances, prepaid cards also come with a couple of downsides.
No Credit Reporting
As mentioned above, prepaid cards, like other debit cards, do not report your transaction information to credit bureaus, so they are of no value if you’re trying to build a credit history or improve your credit score. In that case, you may be better off applying for a secured credit card. That’s a special type of credit card card for people with little credit history or a poor one. A good secured card will report your bill payments to all three major credit bureaus.
If you’re looking to control your spending and stay out of credit card debt, or are unable to get any other kind of card, a prepaid card might be the answer. There are myriad options on the market, so look for ones that are easy to use and reload without paying a fortune in fees.