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Prepaid Credit Cards

Prepaid credit cards are a newer alternative to a traditional student credit card. There are major differences between the two - find out what prepaid credit cards offer and how a prepaid credit card stacks up against a regular student card.

With the news that the national savings rate is negative, and with horror stories stemming from credit card debt, it is understandable that many people are wary of credit cards. On top of this wariness, is the fact that credit card companies are starting to tighten their lending standards, making it a little more difficult for students to get credit cards.

There are also some other issues with traditional credit cards. According to the Georgetown University, college students do not get the same credit line as other young adults in the same age group that are not college students. Sometimes, getting the credit that you need as a student just is not possible.

One of the ways to solve the problems of mounting debt, as well as help you build credit and get a larger credit line is to use prepaid student credit cards. They can be great financial tools to help you get used to responsibly managing your money when a credit card is involved.

What are prepaid student credit cards?

Prepaid student credit cards are just what they sound like: Credit cards for students that you prepay. With most credit cars, you are issued an available credit line, and you can borrow against it without having the actual money to pay for the purchase. Interest is charged, and you have to make minimum payments until you manage to pay back the entire amount of money you spent.

With student credit cards that are prepaid, the opposite is true. In fact, prepaid credit cards are basically debit cards. You have an account, and you put money into the account. The card allows you access to this account, and you can spend until you run out of money. You only get to keep spending as long as you keep replenishing the account. But, since they are considered credit cards, they can actually help you build credit.

How prepaid student credit cards can help you

If you are worried about getting into debt using a credit card, but you still want to build credit, you can use a prepaid student credit card. If you make regular payments, many companies will report it as such, and this can help you establish a credit history without the risk of getting into debt. Additionally, you can avoid the disadvantages of paying interest charges with a prepaid credit card.

You can also be helped by prepaid student credit cards by getting a higher “available” balance. Because the cards are prepaid, you can usually determine your credit limit, to a certain point, without regard to how much someone is willing to lend you. With credit standards tightening, this can be a great advantage, since it will allow you to get a higher “limit” and more flexible payment if necessary. And, when you are ready for a more traditional credit card, prepaid student credit cards can provide the basis for getting better terms.

Things to watch out for when choosing a prepaid student credit card

While prepaid student credit cards can be helpful tools for college students, there are some things to watch out for:

• Limits on how much you can put on the card. While you can generally decide how much you want to put on your prepaid credit card, there are some limits. However, the limits are generally higher than what you could get with a traditional credit card.
• Fees for loading the prepaid credit card. Some prepaid student credit cards charge fees when you load the card. Other cards charge you fees if you do not regularly load your card. Check for different fees before you decide on a prepaid credit card.
• Not all cards are reported to credit bureaus. In order to build credit, your payments need to be reported to the three major credit bureaus. While many prepaid credit card companies do report to the bureaus, there are some that do not. When you apply for a prepaid student credit card, ask what the reporting policy is.

College students can receive benefits from using a prepaid student credit card, but it does require some research. Just as there are different features and terms with traditional credit cards, prepaid credit cards have different fees and terms. But if you are looking for a way to build some credit, and to get used to managing money using credit cards, a prepaid credit card is a good way to get started.

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