Credit CardsLearn

How To Use A Prepaid Credit Card

Updated: October 10, 2018

You don’t always need a traditional credit card to use plastic at the checkout. In fact, if you want to keep your debt down and prefer to stay away from credit, prepaid credit cards are a great option. Further, you might consider prepaid debit cards if you don’t have a bank account, or need an alternative to cash. It’s for these reasons and many more that reloadable prepaid cards are becoming increasingly popular and could be a great option for you.

How do prepaid debit cards work?

Prepaid debit cards work exactly the way they sound like they might work. Basically, you sign up for a prepaid card, load it with funds and then use it for spending just as you would any other card. However, although there are similarities, prepaid debit cards stand out from regular credit or debit cards in a few different ways.

For instance, prepaid debit cards require your own funds; there is no credit line. Further, prepaid cards use funds loaded onto them, whereas debit cards pull funds directly from the associated bank account.

What are the benefits of a prepaid credit card?

There are a number of benefits to using a prepaid credit card. Some of these benefits include:

  • No credit check
  • Only spend what is on the card
  • Safer than carrying cash
  • Use anywhere Visa or Mastercard is accepted online or in-store
  • Can be used for online shopping

How do I get a prepaid card?

You can purchase prepaid cards online and in-store at a number of different retail locations. You will typically pay the cost of the card, plus any other fees. You may also have to load the card with funds right away.

You’ll need to verify your information to set up your account with the prepaid card, which typically requires providing personal information such as your name, date of birth, address, and phone number. You will also be asked for your Social Security Number, but there won’t be a credit check. This provides additional security for you and your funds, as the provider will be able to verify ownership if it’s lost or stolen.

Prepaid cards vs Credit cards vs Debit cards

Not sure which type of card to get? Consider the differences between prepaid cards, credit cards and debit cards. First, prepaid cards aren’t connected to a bank account like debit cards. You have to reload a prepaid card with funds. When you’ve spent those funds, you’ll need to reload the card to use it again. Debit cards continuously pull from the connected bank account. So, while you could possibly overdraft your account with a debit card, a prepaid card won’t allow you to spend more than you have on the card. Further, reloadable cards might have fewer federal protections than debit cards because they aren’t connected directly to your financial institution.

There are huge differences when it comes to prepaid cards vs credit cards. Primarily, there are no credit checks involved with prepaid cards, and you won’t be able to build credit – your activity with a prepaid card isn’t reported by any of the credit bureaus.

At the same time, you also won’t have a line of credit to use. You can only spend the amount you load onto the card, nothing more. Plus, with credit cards, there is a risk of overspending because the credit is there, and then spending years to pay down not only what you’ve spent, but the additional credit card interest as well.

Prepaid Cards Debit Cards Credit Cards
Linked to a Bank No Yes Optional
Need SSN No Yes Yes
Affect Credit Score No No Yes
Monthly Fees Yes
Check your card’s terms and conditions for a list of all fees
Most banks don’t charge any usage fee, but please check with your bank
Depending on the type of card you may incur monthly fees for certain privileges
Transaction Fees Yes
Check your card’s terms and conditions for a list of all fees
Very rare. Please refer to your bank’s fee structure
Usually a percentage of the transaction amount, incurred by the merchant but could also be passed down to the consumer in some cases
ATM Fees Yes Yes
Mostly for out of network ATMs
Carry Balance Not possible No Yes
Charge Interest No No Yes
Could be very high depending on the type of card and your credit history
Offer Rewards Yes
Not so common
Yes Yes
Very common and better than Prepaid or Debit cards
Consumer Protection Yes
Not on par with major credit or debit cards
Governed by the law of Electronic Fund Transfer Act
Governed by the law of Fair Credit Billing Act

Drawbacks of Prepaid Debit Cards

Although there are numerous advantages to choosing prepaid debit cards over other alternatives, there are also drawbacks to be aware of. While the upside is that you don’t have to worry about prepaid cards and a credit check, you also won’t be able to build credit. For instance, if your goal is to build or repair credit with your account activity, that won’t happen with reloadable prepaid cards. In fact, you can look at prepaid cards as completely free of the credit system.

In addition, although they are similar, another drawback of a prepaid visa or prepaid MasterCard is you won’t get the card benefits and perks you’ll get with other credit cards. Benefits like purchase protection, extended warranty on purchases and travel insurance are often included with credit cards, but not with prepaid cards.

You should also consider prepaid card fees. Unfortunately, prepaid cards have a reputation of, at times, being costly because of the additional fees. These fees range from monthly fees to reload and ATM fees, to additional fees to just start using the card. Be sure to read the fine print and be aware of what the card will cost you before you make your purchase.

How to Use a Prepaid Credit Card

Using a prepaid card is fairly straightforward. Once you get the card, most of your work is done. You can even reload the card online or over the phone from the comfort of your living room. While it might vary from card to card, the steps to using a prepaid card typically include:

  • Open the account either online or in-store
  • Load money – you can usually do this online or in-store at the time of purchase
  • Use your card and shop wherever accepted – dependent on the logo on your card

For people who avoid the banking system, prepaid cards also provide an alternative. Most of the time, you can use your card at ATMs to withdraw or deposit. Plus, many of the cards include features like direct deposit and the ability to transfer funds from card to card, so you don’t have to ever open a bank account if you don’t want to.


If you’re looking for an alternative to credit credits, want to avoid racking up debt, or need banking features without the bank account, prepaid cards are a viable option. The primary costs to look out for are those that you’ll have to pay on an ongoing basis – monthly fees, reload fees, and deposit/withdrawal fees, for example. Although they might seem small, they can add up long-term.

Prepaid cards aren’t the best solution for every person’s needs, but they do provide some benefits worth considering. Just make sure you are fully aware of the features and costs that come with your card before getting started.

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