Prepaid Credit Cards

Written by Jared Vincenti
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Most credit cards are based entirely on a customer's credit rating. If someone has good credit, a credit card represents monies loaned to them by the creditor. In effect, the credit rating shows the lender that he can have faith that he will be paid back, so there is no money transferred when a credit card is issued.

Types of Prepaid Credit Cards

Often, someone with damaged credit will get a secured credit card to help repair their credit. With a secured card, the applicant sets aside a sum of money that is held by the creditor. This money is not touched unless the applicant misses a payment, in which case the creditor will take the amount of the missed payment out of the secured sum that they are holding.

Alternately, you can purchase a prepaid credit card. These do not charge interest rates, but instead represent a set amount of money that can be charged to the card. As the money is spent, the card gets used up, and must be replaced.

Prepaid credit cards should not be confused with debit cards. A debit card is linked to a person's checking or savings account, and takes money from that specific account when used. A prepaid credit card has nothing to do with an individual's financial institutions, but instead uses the money put down when it was purchased. A debit card's worth depends on the amount of money in the attached account, while a prepaid credit card must be replaced when exhausted.

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