Do Prepaid Debit Cards Help Build Credit
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What is a Prepaid Card?
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A prepaid card is a type of payment card that can be loaded with money inadvance and then used to purchase goods or services without incurring debtfrom the issuer.
The most common type of prepaid cards is a prepaid debit card (which acts likemaking bank account withdrawals when purchasing goods and services).
You can also use a secured credit card (which works similarly to traditionalplastic but requires you to front the money you spend to avoid overspendingyour balance).
You can also have another type of prepaid card like gift cards, which can onlybe spent on one merchant offering a particular product or service.
How Do Prepaid Cards Work?
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While features and functionalities of prepaid cards vary widely, theygenerally have these common features:
* ATM access: Some prepaid cards only allow in-network ATM withdrawals for free, meaning at the issuing bank or financial institution’s branch network. Others allow you to access nationwide ATM networks like those through branded bank networks or national network providers. * Reload options: A prepaid card generally allows you to add money to your balance in multiple ways. This can include through direct deposits, visiting a participating retailer to load more cash onto your balance, depositing checks at ATMs or even transferring money online or through mobile check deposits on a smartphone app. * Card limits: Many cards will either restrict how much you can withdraw from an ATM, spend or reload per day. * Consumer protections: One major advantage to a prepaid card over cash is the liability and fraud protection you have from federal law. Some offer purchase protections, though you may face some difficulty disputing unauthorized transactions or correcting errors seen on your account. Further, many of these products offer FDIC insurance, covering your balance if the issuer goes out of business. * Fees: One theme all of these cards have in common are fees. There’s a laundry list of them and should always be something you have in mind when comparison shopping. Be sure to read the fine print because some can be waived if you take certain actions—by having direct deposits, for example. * Expiration dates: Like a credit card, a prepaid card has an expiration date. If you’ve got a remaining balance on the card, you need to have a card reissued before it expires. If your card expires with funds still on it but no new card has been reissued, contact your issuer. If they refuse to issue a new card, file a complaint with the Consumer Financial Protection Bureau. * Other features: Not all prepaid options are the same. Some offer check writing, internet banking and multiple cards for people with different needs like family members. Some prepaid cards offer incentives, such as cash back on purchases.
What are the Advantages of a Prepaid Card?
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A prepaid card is often as good as cash, though sometimes even better, such aswhen:
* You don’t want to carry cash around; prepaid cards offer certain consumer protections about theft and misappropriation of assets, which cash simply cannot * Prepaid debit cards can be used to make online purchases * Prepaid cards can also make a more attractive financial gift than cash
Prepaid cards work best for the unbanked or those looking for a betterbudgeting system for themselves. These can be a welcome alternative to creditcards with the potential to fall behind on payments and get hit with costlyinterest.
Budgeted properly and controlled well, prepaid debit cards can builddiscipline with your money and show you how to grow your assets without theburden of costly debt accruing from credit cards. You also don’t need a creditcheck run.
Plus, these products don’t have a spending limit beyond what you place on thecard, avoiding costly overdraft fees. You can’t spend more than you have,making it easier to minimize the costs of using these financial products.
Likewise, you won’t need to worry about missing a payment and threatening tolower your credit scores. As we’ll discuss later, unlike credit cards, theseprepaid alternatives don’t impact your credit.
Paper Statement Fee
Some prepaid cards charge a fee if you ask for paper statements. If you wantto see your bank statement without paying, go online because it is likely freeto access.
Prepaid card options were developed as a way for people to avoid highoverdraft or checking account fees by having people load money onto the cardand then use it for purchases.
The Consumer Financial Protection Bureau drafted the prepaid rule to getinformation about your account for free.
Unless they provide paper monthly statements, a provider of prepaid debitcards must furnish you with balance information by phone and online for free.
Some companies will automatically send transaction history to your address inthe mail for a fee while others will only do so if you request it.
Do Prepaid Debit Cards Help Build Credit?
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Despite a prepaid debit card having the same look and feel of a regular creditcard, these cards don’t help to build your credit like a credit card can.
For an account to impact your credit score, it needs to count as a debt orliability. To build good credit, you need to make regular payments on thesedebts over long periods of time. These factors play the biggest roles inbuilding your credit.
A prepaid debit card, on the other hand, works like a regular debit cardwhereby you load the card with money (or, in the case of a debit card issuedby a banking app or institution, have a balance in your account) and draw onthe funds when you make purchases.
You can use a prepaid card like a credit card, but it won’t build credit likea credit card.
In effect, because you don’t borrow money from anyone with a prepaid card, theaccount doesn’t get reported to credit bureaus and therefore has no effect onyour credit score.
Related: 15 Money Apps for Kids (Debit Cards, Investing, Management)
Will Prepaid Credit Cards Affect Your Credit Score?
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When you use a regular credit card to make purchases, you borrow money fromthe card issuer. You can repay it in full or let the funds carry over to yournext payment due date.
If you carry a balance, you’ll accrue additional costs in the form of interestcharges.
Credit card companies typically report your payment activity to one or more ofthe three major consumer credit bureaus, however debit cards work differently.
A prepaid debit card is like a gift card that you purchase for yourself; onceit has been fully depleted, the card can’t purchase anything until you reloadit, if that is an option.
Non-reloadable prepaid credit cards are unattractive to some consumers becauseyou cannot reuse them after depleting the funds.
In short, your use of prepaid credit cards doesn’t get reported to creditbureaus. As a result, they don’t affect your credit score.
Alternative to Prepaid Debit Cards
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If you can’t qualify for other credit cards because you have bad credithistory or none at all, you might consider a secured credit card instead.Secured cards are easier to obtain because they require a refundable securitydeposit as collateral for the lender.
The advantage of a secured credit card is that your payment history and numberof accounts will be reported to the three major credit bureaus. Over time,with a steady and consistent payment schedule to handle your debt, this willhelp to build up your credit history.
Debit cards of any kind won’t have your purchase history reported, meaningthey won’t help with your credit. Consider opening checking and savingsaccounts with a bank to manage your money and then opening a secured creditcard instead to begin banking and building credit.
You can have your paycheck sent to your account via direct deposit and thenhave this balance serve as collateral on the card when you make the transfer.The amount you deposit as collateral determines your credit limit.
Prepaid Debit Cards vs. Regular Debit Cards
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Using a debit card involves pulling against a balance held in the linked bankaccount. Therefore, you need to meet the requirements for opening a bankaccount for this type of card. To use a prepaid card, you only need to have anaccount with an issuer.
With a regular debit card, as you generate income, make deposits, or spendmoney from the associated account, your account balance will fluctuate fromday to day.
When you use a prepaid card, you only have a fixed amount of money to spend.This declines as you spend it or increases if you reload the card.
Prepaid Cards vs. Credit Cards
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These two types of cards, debit and credit, allow you to spend money in acashless manner, avoiding any physical transfer of cash between parties. Theyshare many more similarities than differences, but some do exist.
When breaking down how prepaid debit cards vs. debit cards vs. credit cardscompare, look at the following distinguishing features
* Prepaid debit cards: You pay before the purchase. You load money onto the card by any of a number of methods before paying for transactions. * Debit cards: Pay now. When using a debit card, the funds pull directly from your checking account. * Credit cards: Pay later: When using a credit card, the purchases simply add to your line of credit and you pay back the bank later.
Payments and Gift Cards
How can I pay for my order online?
bcf.com.au accepts payments within Australia only via:
* American Express * MasterCard * Visa * AfterPay * Apple Pay * Zip Pay * Zip Money * PayPal * BCF Gift Cards * By Phone
How can I pay for my order in store?
BCF stores accept payments using any of the following:
* American Express * MasterCard * Visa * Gift Card * Afterpay * Zip Pay * Zip Money
In-store Payment via Gift Card. BCF accepts only BCF Gift cards. Gift cardscan be used for products or services in store and can be redeemed on part of,or all of a transaction at the checkout. You can use as many gift cards as youwish in-store to complete your transaction.
Please produce your original gift card/s at the time of transaction.
Gift Cards purchased as and from 11 October 2018, will have no expiry date.Gift Cards purchased before 11 October 2018, will be valid for use for three(3) years (36 months) from the date of issue. Any balance that remains on aGift Card purchased prior to 11 October 2018 will not be available for useafter the expiry date. Excludes Ultimate Cards and Promotional Gift Cards.