Q:

Can someone with bad credit qualify for a prepaid credit card?

A:

Quick Answer

A person with bad credit typically qualifies for most prepaid credit cards as long as he can provide valid identification. While these cards often carry the Visa or Mastercard logo, and merchants who accept credit cards accept them, they are actually prepaid debit cards. Users only spend what they deposit.

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Full Answer

With a traditional credit card, each transaction is a small loan. The cardholder promises to pay the credit card for the transaction, along with interest according to the card agreement. With prepaid credit cards, the user deposits money into an account and each purchase reduces his account balance. When the balance reaches zero, he is no longer able to make purchases.

These cards work more like a bank debit card attached to a checking account than a credit card. Because prepaid cards do not involve credit, they do not build the cardholder's credit rating. Most do not report to the credit reporting agencies. However, they are available to nearly everyone, even people who have a negative report through Checksystems and cannot open an ordinary bank account.

Secured credit cards offer another option to people who cannot qualify for traditional credit cards. With these cards, the cardholder opens a savings account with the card issuer and receives a credit card. The initial credit limit is often equal to the amount in the savings account but grows as the cardholder proves his creditworthiness.

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