A student credit card isn’t really different from a regular credit card. They work the same. They might look a little different as credit card companies have tried to appeal to the students by either allowing them to personalize the card with a picture, initial or by choosing a few preset options. But the small plastic cards still enable the student to purchase goods and services on credit, with the promise to pay at a later date.
The card issuer can be a bank or other financial institution, or the cards can be issued by the retail store or service company for their specific product. The card issuer sets a limit to the card holder and based on how payments are made, the card holder may raise or lower that limit.
Having a student credit card can be a great way to establish a credit history. But these credit cards often carry a high interest rate. A quick perusal of rates showed that percentages varied widely from a credit union credit card of under 10% with no fees and no reward offered, to cards with an interest rate of over 21%.
Credit Card versus Charge Card
Student can get either a credit card, or a charge card. Even thought the terms are often used interchangeably, there is a difference. A charge card requires you to pay the total balance of money charged to the card at the end of each month. They usually have an annual fee, offer rewards and if you pay the entire bill each month, there is no interest charged. An example of this type of card would be the traditional American Express Green Card.
A credit card would allow the student to carry a balance forward and pay anywhere from the minimum monthly payment, to the full amount charged to the card. With a credit card, interest accrues each month on the balance left over after a payment is made.
New Rules And Regulations
There are new rules and regulations that will take effect as of August 2010 that specifically address student credit cards. An adult cosigner is now required for all students or anyone that is under 21 years old, unless the under 21 year old can prove they have consistent means to pay for the credit card. The adult co-signer will be asked to assume responsibility for the credit card payments and to prove that they can afford to make those payments if the student defaults.
Another rule that affects students under the new laws is that the credit card companies will no longer be allowed to market on or near campus if they offer promo items like free pizza or gifts if the student fills out a credit card application.
These new regulations are designed to stop students from getting a credit card, defaulting and leaving their parents liable for the credit card debt when they didn’t even know that the student had a credit card.
Secured Credit Cards
One option often offered to students is a secured credit card. This type of credit card requires a security deposit on the account. That deposit generally equals the credit limit. The deposit is held in a special savings account; it does accrue interest, but can’t be accessed by the account owner. The credit card can be utilized for any purchases and after having the secured credit card for a year and establishing a history of on time payments, the card issuer will generally re-evaluate the card holder’s status. At this time if the payments have been made on time, the security deposit is released and a credit limit assigned to the card holder.
Prepaid &Credit-Cards"
These cards are not actually credit cards but are a type of stored value card. There is no credit check done for these types of cards. The parent or student simply makes a deposit that stores money on a card. These prepaid cards carry a credit-card brand like Visa, Discover or American Express, and can be used just like any credit card. The money stored on the card is reduced each time the card is used.
Prepaid cards can be given to students as young as thirteen years of age. There is no interest on these cards, there is sometimes a fee to purchase the card and there may be monthly fees or "non-use" fees if the card is not used in a specified period of time. As with any type of credit card, make sure you verify all the fees.
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Prepaid credit cards are a convenient option for many people. Still, there is sometimes a lot of confusion about what these cards are and what they are not. Below are three of the most commonly asked questions about prepaid credits cards.
Can They Be Used Everywhere a Traditional Credit Card Can Be Used?
One of the best features of prepaid credit cards is that they can be used in most of the places that you can use a traditional credit card. One of the ways these cards come in so handy is for those who want to be able to shop online yet are unable to obtain a credit card.
While prepaid credit cards can be used in most places, there are a few exceptions. For example, some car rental companies and some hotels will not accept the cards. This is a decision made by certain hotels and car rental agencies and is not due a difference in the features of the card.
Will These Cards Help to Improve My Credit Score?
Many people mistakenly think that a prepaid credit card can help to boost their credit score. Unfortunately, this is not true. While a traditional card is based on an amount of credit that has been extended to you and that you promise to repay, no such credit is extended for a prepaid credit card.
While there are some important differences, prepaid credit cards work more like a gift card. You pay cash to put a set amount of money on the card. You can then use the card until all of that money has been spent.
Because no credit is extended, there is nothing to report to the credit bureau and, therefore, there is no impact on your credit rating.
Do I Have to Pay Interest on Purchases?
Purchases made with a prepaid credit are not subject to interest. The reason is the same for why the cards do not help your credit score: no credit is extended. Instead, you are simply spending money that you have loaded onto the card.
While you do not have to pay interest, there are often fees in place for prepaid credit cards. These could include a flat monthly fee as well as a per transaction charge. The amount of these fees vary greatly, so be sure to shop around for the best deal if you are looking for a prepaid credit card.
Is a Prepaid Card the Same as a Secured Card?
While the cards are similar in some ways, a secured card is not the same as a prepaid card. One of the important differences is that with a prepaid card you load money onto a card and that money is what you spend. No credit is extended. With a secured card, you place a set amount of money into an account to which you have no access. The credit card company then extends you a line of credit based on the amount in the account.
Because a secured card does involve an extension of credit, the issuer of a secured credit card will usually report the activity to the credit bureau, which can help your credit score if you use the card wisely. As discussed above, a prepaid credit card will have no impact on your credit score.
Another very important difference is that purchases made with a secured card will accrue interest. Often, because these cards are issued to those with less than perfect credit, the interest rates can be quite high. A prepaid card does not charge interest on purchases.
After reading the answers to some of the most common questions about prepaid credit cards, you should be better equipped to decide if the cards are the right choice for you. For many, they provide convenience and the ability to shop online safely. For those wishing to rebuild or establish credit, they are not the right choice.
If you do decide to obtain a prepaid credit card, remember that not all cards are the same. You must be sure to shop around so that you can find a card with low fees and key features that are important to you.
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Prepaid credit cards can be convenient, especially for those who cannot obtain a traditional credit card. Others choose to keep a prepaid credit to use when shopping online so that they do not have to risk the account numbers to their other credit cards being compromised. Whatever the reason that you are considering one, look below for four tips for receiving the best prepaid credit cards.
Shop Around
Some people think that all prepaid credit cards are the same. This is not the case. Some charge just one fee per month while others have a whole menu of fees such as transaction fees, service fees, even fees for loading more money onto the card.
You will need to examine each card’s fees along with the way that you plan to use the card to determine which prepaid credit card will be the best deal for you.
For example, if you only plan to use the card once a month to shop online, then it would make more sense to get a card with a per transaction fee and a lower monthly service fee. If you think you will be using the card a lot, then you should find a card with a higher monthly service fee and no transaction fees.
Read the Fine Print
As with any type of credit card, you really need to take the time to read the fine print. Some cards have clauses that begin to charge you extra fees if you do not use it for a few months. Others state that you cannot use the card to order items over the phone.
You need to know how you want to be able to use the card and then read all of the fine print to make sure that the card you choose will meet all of your needs.
What in a Name?
Some prepaid credit cards will have your name embossed on the front like a traditional card, while others will not. For some people, this may not be an issue, but some need to make sure that the card you choose will have your name on the front.
If you plan to rent a car or book hotel or airfare, you will absolutely need to have your name printed on the front. If not, these places will not accept this form of payment.
Of course, you will need to wait a bit to receive your personalized card. Many retail stores sell prepaid credit cards that you can buy over the counter, load some money right at the cash register and leave the store with a card that is ready to use.
Obviously, you will not be able to do this with a personalized card, but for many it is worth the extra wait to know that you will be able to use the card for most applications.
Call Customer Service
It is a good idea to call the customer service number just to get an idea of how difficult it is to reach a real person. If you find yourself on eternal hold, find another prepaid credit card company. While you do not necessarily anticipate having any problems, you still want to know that, if you do, you will be able to get help quickly.
Go For a Bonus
As more and more companies compete for a share of the prepaid credit card market, many are beginning to offer reward programs to their customers. These programs are similar to the rewards programs of many traditional credit cards.
The rewards will vary greatly from card to card. Some may offer a cash back percentage. Others will issue reward points, which can be traded for merchandise or travel.
Keep in mind that often the cards that offer rewards have fees that are a bit higher to cover the extra expenses. Still, if you plan to use the card a lot, finding a card with a rewards program may not be a bad idea.
Whichever prepaid credit card that you choose, be sure to manage it wisely. Most have additional – and hefty – fees that are charged should you try to complete a transaction for which you do not have ample funds.
Like any other type of credit card, prepaid credit cards can be a useful tool, but one that must be managed well to avoid it becoming a hindrance rather than a help.
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Prepaid credit cards are growing in popularity, but not everyone is ready to jump on board with this type of card. It is important to understand that there is no credit being extended to the users of these cards. Instead, prepaid credit cards function more like a gift card.
You load an amount of money onto the card and can then use the card until that money has been depleted. No credit line means no interest will be charged, but there are fees involved when using a prepaid credit card.
Still, even with the fees, which may include monthly service fees as well as per transaction fees, the cards make a lot of sense for some applications.
Teens
This is one of the most popular ways to use prepaid credit cards. Parents who want their teen to have access to a credit card in order to learn how to properly manage one are turning to prepaid credit cards. This allows the parents to have absolute control over how much money the teen has access to at any given time. In an emergency, the parent would be able to load more money onto the card instantly.
This provides all of the benefits of a teen credit card without the risk of the teen charging up more than his or her allowed limit.
You may want to check to be sure that a detailed statement is available, as not all prepaid credit cards will offer this service.
For many parents, a prepaid credit card is the perfect alternative to giving their teen a traditional credit card.
Getting Out of Debt
While this might seem like an odd way to go about this, many people are finding that prepaid credit cards are helpful in assisting them in their goal to get out of debt. Instead of continuing to use their traditional cards that charge high interest rates, some are turning to prepaid credit cards.
This allows them to continue to have the convenience of being able to book travel and shop online while they work to pay down their credit card balances.
Keep in mind that some financial experts think this is unwise because of the high fees that some prepaid credit cards charge. Still, some have found this type of card to be a useful tool in working toward their goal of being debt free.
Online Shopping
Another useful application for prepaid credit cards – even among those who thought they had no use for this type of card – is online shopping. It seems like there are too many stories in the news about various retailers suffering a compromise of their customer’s credit card information.
When you shop with a prepaid credit card, dealing with such an issue is very easy. Simply, empty the prepaid card and get a new one. You will not have to deal with canceling your traditional credit cards and will be in no danger of a criminal being able to make purchases that you will have to fight to prove are not yours.
As prepaid credit cards continue to evolve and grow in popularity, there is a good chance that many will offer cards with reduced fees and other benefits. Some discounts stores, such as Wal-Mart, already offer such cards with fees that are lower than some of the competition.
Also, a few prepaid credit cards feature rewards programs where users can earn points or cash back based on the amount that they spend on the card each month.
As more people try to get a handle on debt and make moves to protect themselves from identity theft, it is likely that more and more people will turn to prepaid cards as a way to be able to handle important remote transactions, such as booking travel, without having to deal with traditional credit cards.
Even if you have never considered a prepaid credit card before, you should start keeping your eye on the changes that companies offering such cards make. There is a good chance that, in the not so distant future, these cards will present a benefit to a consumer base that at one time had no use for them.
Whether for teens, managing debt or other various reasons, prepaid cards are filling needs that traditional credit cards cannot.
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A prepaid credit card is a good option for some people who would like the convenience of being able to use a credit card without having to actually have a credit line approved. While a typical credit is based on a credit limit for which you must be approved, the amount that you can spend with a prepaid credit limit depends on the how much money you have loaded onto the card.
Because there is no actual extension of credit, there is usually not an approval process for owning a prepaid card. This makes the cards particularly attractive to those who, for various reasons, cannot gain approval for a traditional credit card but need to have a card in order to purchase products online, book a hotel room or rent a car.
While you will not have to pay any interest on purchases made with a prepaid credit card, there are often fees associated with them. While the fees will vary based on the provider of the card, they may include monthly service fees as well as a small per transaction fee. You may also be required to keep a minimum balance on the card.
You may also be charged a fee if you attempt to use the card in a way that exceeds the amount of money that is available on the card.
Even taking the fees into consideration, a prepaid card is a good option for many people. If you shop around for the best card and use it carefully, you will likely be able to minimize your fees.
Finding a prepaid card is not difficult. Many banks and credit unions offer some form of prepaid card. They can also be purchased at most check cashing businesses and even at some retail stores. Understand that not all prepaid credit cards are created equally. You should have a full understanding off all of the rules, fees and features before selecting a card.
While most brick and mortar and online retailers will accept a prepaid credit card, there are exceptions. Some businesses will not take a prepaid card for ongoing monthly payments, such as for a gym membership. Some car rental companies also will not accept prepaid cards. If you are thinking about getting one of these cards for such a purpose, you might want to ask the business first to make sure that they will accept the card.
Another limitation when it comes to prepaid cards has to do with your credit rating. Some mistakenly think that a prepaid credit card can help to boost their credit score. The truth is that these cards have no impact on your credit rating.
Because no one is actually extending credit to you, nothing is reported to credit bureaus concerning your prepaid card.
Prepaid credit cards should not be confused with secured credit cards. Secured credit cards are based on an extension of credit, but you secure that loan by keeping an amount of money in a savings account that is equal to your line of credit. You pay interest on what you spend and the transactions are reported to the credit bureaus.
Secured cards function exactly as other traditional credit cards without the limitations one may find with a prepaid card.
While prepaid cards are popular among those with tarnished credit, they can also come in handy for those who do have traditional credit cards. Some use the cards to do their online shopping because then they do not have to worry about their regular credit card account numbers being stolen.
Others choose prepaid credit cards when traveling for much the same reason. They offer the convenience of the card, but if someone does steal the account number, there is not much hassle involved, although you could be out the amount of money that was left on the card.
Parents also sometimes choose prepaid credit cards for their teens to use in the case of emergency. With a set amount of money on the card, there is no chance that the teen could run up unexpected bills.
Prepaid credit cards are a convenient option for many consumers. Be sure to shop around so that you get the best deal on a card with the best features.
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