Prepaid Credit Cards Costly

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Prepaid charge cards are an option for those who don’t want to use a credit card and don’t have a debit card. According the Federal Reserve, in 2006, the most recent year from which numbers are available, prepaid plastic was used in more than 300 million transactions totaling more than $13 billion. But they come with some strings attached.

Consumers Union, the publisher of Consumer Reports, recently studied 18 popular prepaid cards. 17 of 18 charged an activation fee ranging from $3 to nearly $100. 15 of 18 charged monthly fees from $3 to $10 dollars. All 18 charged ATM fees from $1.50 to $2.50. And 17 of the 18 charged fifty cents to a dollar just to check your balance at an ATM. Download the study here.

And who do you think most often uses these cards? According to Consumers Union, low-income workers (they sometimes get paid with these cards) and people trying to rebuild their credit.

But, there-in lies another potential problem… Some of the companies surveyed don’t report these transactions to credit reporting agencies at all. Others report to minor agencies, not the big three (Experian, Equifax and TransUnion). So while you make think you’re rebuilding your credit, you’re not.

Bottom line? Pre-paid plastic may be one solution for unbanked, but it’s not a cheap one. Best advice? Before you go prepaid, read some fine print.

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  • http://www.realsolutions.coop Vicki Joyal

    I agree that the fees on some prepaid cards are ridiculously high, so consumers need to be very careful when choosing a prepaid card provider. However, these are NOT credit cards (even though the news clip says they are) because they are PREPAID. The money is loaded onto the card and it’s used to purchase goods or to obtain cash at ATMs, but when the money is gone, it’s gone until the accountholder replenishes the funds. Responsible use may enable those with poor credit and banking histories to qualify for mainstream checking accounts and/or regular debit cards, but these cards will not build credit because there are no loans involved.