Credit Guide

The words "free" and "prepaid" may light up your eyes, and it's no wonder that these new types of credit cards are fast becoming one of the hot new items in the credit card world. They give you instant approval to spend. They don't have a long drawn-out application process. And you don't even need a bank account to get one.

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1. There Are No Free Lunches

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As the saying goes, though, if it sounds too good to be true, then it probably is. In this case, this saying is only partially true. Hence, here's our first tip for those shopping for prepaid credit cards-know what you're getting into. Free prepaid credit cards may be the best bet for people who otherwise have trouble getting traditional cards, either because they have bad credit or no credit. They act as both a credit card and a debit card. But they aren't free. They have a downside-these cards have high fees and penalties.

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2. Read the Fine Print

Prepaid cards are electronic cards which allow card holders to access funds deposited to an account. A prepaid card can be used to withdraw money or pay for goods and services. Unlike a credit card, which extends a line of credit, prepaid cards are more similar to debit cards. Prepaid card holders can only spend the money they load on the card. Since no credit is extended to prepaid card holders, interest and overdraft fees are avoided.

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So before you act on these cards, be sure to check the fine print. Compare your options to find out which has the best rewards program, giving you the best prizes for money spent on the card. Just like credit cards, these prepaid cards allow you to accrue these rewards the more money you add, and take off, the cards.

Money can be loaded on to your prepaid card by cash, bank transfer or even another credit card, and because it is a Visa or MasterCard you can use it anywhere in the world. Prepaid cards generally have the same uses as a credit card, so much so that they are commonly referred to as ‘prepaid credit cards’. However, there is a difference. A prepaid card is completely powered by your cash and therefore the money you have in your prepaid account is the money you have to spend. This means there is no risk of running into debt. There are no credit checks and no interest to pay. Consequently, rather than referring to it as a prepaid credit card, a better description would be a prepaid debit card, a prepaid Visa card or a prepaid MasterCard.

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3. Compare Fees

For some, prepaid cards can be used as a way to discipline spending habits. Since prepaid cards only use deposited funds, excessive shoppers may see them as a healthier alternative to credit cards. By using a prepaid card instead of a credit card, items are not bought on credit, eliminating the headaches of high interest rates.

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On the negative side of things, compare the cards' fees. Some cards may cost upwards of $20 just to start one, plus have monthly maintenance fees and fees to add and withdrawal money. These cards can also have fees to argue a charge, or to get a hard copy of your statement. All this money adds up, even if the fees are only a few bucks. So look for the lowest fees possible.

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4. This Isn't Monopoly Money

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Another tip to consider with prepaid cards is that these may seem like a good way to spend less money than regular cards. After all, the money is already added to the card, so it's OK to spend it, right? However, don't let this attitude lead to overuse of the card, because you'll only end up adding more money, and spending more fees, on the card in the long run.

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5. Look into Special Features

Bad Credit Loan There are some positives to keep your eye out for when shopping for prepaid credit cards. Many of them also offer not only rewards programs, but zero-liability fraud protection, meaning that you aren't responsible for anyone using your card against your permission, or stealing the card and committing credit card fraud.

Credit Definition Derivative Joshua Shapiro recommends Find Credit Cards to find a free prepaid credit card.

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