How To Choose A Prepaid Credit Card

If you have a poor credit rating, with arrears, defaults and County Court Judgements (CCJs), a prepaid credit card is one option for getting a type of credit facility.

A prepaid credit card isn't really a credit card. It's more like a mobile phone top up card. You top it up with money (up to £5,000 on some prepaid credit cards) and then you can spend as much as you like up to that limit. Since you are using your own money, there are no credit checks. All you need to do is prove who you are and where you live.

With no interest on prepaid credit cards, card issuers have to find other ways to earn, so it is worth paying attention to the fine print to see what additional charges there might be.

Prepaid Credit Card Charges

Many card issuers charge an application fee for processing the application and issuing the card. It's worth checking how much this fee is, as it can be quite steep with some card issuers.

There may also be charges for topping up the card. Some prepaid credit card issuers charge for every top up. And the charge may vary depending on whether you top up from credit cards, debit card, bank or use cash. And if you use your prepaid credit card to put funds into a bank account, you may get charged again.

Like other credit cards, prepaid credit cards are likely to charge for cash withdrawal. They may also charge for making transactions. These fees can add up over the course of a year.

The Secure Credit Card Option

An alternative to a prepaid credit card is a secured credit card. Secured credit cards have been available in the US for some time. Many UK providers are starting to offer them now and it would be advisable to compare credit cards available to find the best option.

This is another type of credit card intended for people with a poor credit rating. Even discharged bankrupts can get one of these credit cards, though they are not issued to undischarged bankrupts or people with a history of fraud.

To get a secured credit card, borrowers have to pay a security deposit. Provided their credit report matches what they have put on their application, they are issued a card. Credit limits start at about £200 and can increase to as much as £2,500 if the card is managed well. Interest rates for a secured credit card are usually around 30% and repayments are usually 5% of the remaining balance.

Both prepaid credit cards and secured credit cards offer useful ways for people with bad credit to have a credit facility. And management of a secured credit card can be the first step to repairing a poor credit rating, as card providers report payment history to Equifax and Experian.