Bad Credit Debit Card
The purpose of this article is to give an overview of how debit cards work. It will point out the basic differences between a debit card and a credit card. It will also describe why prepaid debit cards are a good option for people with bad credit.
A debit card requires a savings account or a checking account to be established, much like a secured credit card. The bank then issues you a debit card. Most debit cards bear a Visa or MasterCard logo, and look and feel just like a credit card. In stores or online it can be used just like a credit card. For convenience of use, there may be no difference at all.
Most of us know that the way a traditional credit card operates is that your credit is reviewed and you are approved for a credit amount limit. You are then given the card and allowed to freely charge whatever you want and make monthly payments on it later.
This means if you happen to be an individual with negative credit, then you also know it is very hard to get a credit card.
Prepaid debit cards operate very differently. They are also known as prefunded cards, or reloadable cards. The difference is that a money account is directly attached to the debit card.
You established an account that you put money in to. It is usually held at a bank that is FDIC insured. Therefore your money is protected just like a regular bank account.
However, they are not like traditional bank account. It is very unlikely that the particular bank will be located anywhere near the same state and city that you live in. In addition you can not make routine withdrawals from the account.
The account is established with the intent to use it as collateral for a MasterCard or Visa equal to the amount of the account balance. It is for this reason that they are called prepaid or prefunded debit cards.
They look just like regular credit cards. They can be used just like regular credit cards. The main difference is that each charge or purchase made is a direct deduction from the amount you had put in to the account. The balance that remaining in the account is also the limit that remains on the card.
For example, if you sign up for the service and establish an account by funding it with $300. Then you will immediately be sent a debit a card with a $300 limit.
Then when you use the card to make a $50 purchase. Your account is equally deducted by $50 and there will be a $250 limit remaining on the card. Subsequently, if you make a payment of $25 then your account balance increases to $275. Now you can charge up to $275 on the debit card.
No credit checks are required with prepaid debit cards and no one is denied for the service. It is because of the way that prepaid cards function that makes people better at managing their money. No overdraft fees or over the limit penalties are involved with prepaid cards. This is because if a charges is attempted that exceeds the current limit on the card it will be declined.
Because of these characteristics of prepaid debit cards they are a good option for people who know they have negative credit reports.
One differences that consumer advocates feel is very important to know is the level of fraud protection. Typically with traditional credit cards, if it is lost, or stolen, you are only responsible for the first $50 of fraudulent charges. However there is no such protection with debit cards. So it is extremely important that you contact them immediately to have the card cancelled and replaced when you discover it lost or stolen.
Here is a summary of the pros and cons of using prepaid debit cards:
Pros:
* Easy approval process, credit checks are not completed, a simple alternative for people with poor credit
* Prepaid debit card has same usage as any MasterCard or Visa
* You can get money from any ATM machine
* Has a routing and account number which means you can easily set up direct deposit of your pay check
Cons:
* There is usually a one time fee to establish the account and activate the card
* Like with most credit cards, prepaid debits cards usually have a cash withdrawal fee when using a ATM
* Does not include fraud protection features as with regular credit cards
* Some prepaid debit cards do not report your payment history to the credit bureaus, so they don’t help to repair credit
* Even though it seems like you are charging against your own money, the card company says it is a matching amount but not the same money. Therefore there is interest on your charges.
But even after we just gave these points, you should know that prepaid companies are very competitive. Because of this more companies are beginning to offer things previously not available with prepaid debit like the fraud protection, overdraft protection, free ATM withdrawals, etc. So take a look at the feature a particular card may have.
In summary, a prepaid, or prefunded, or reloadable debit card allows you to only spend up to the amount you have pre-deposited into an established account. If you tend to overspend or would like to control your spending then a prepaid debit card could be a good solution. It will help you to better manage your money. They are also a great alternative for people with bad credit to get a Visa or MasterCard.
It is our hope that this article has been helpful to you in determining whether, or not, prefunded debit cards would be a good alternative for you.
BadCreditAssistance.com is a member of Consumers Info USA. We help people with negative credit report find the financial services that they need. Go Now to find out more information about prepaid debit cards and to submit a online application.