Consumers Union Highlights Hidden Dangers of Prepaid Credit Cards

Kiosks for prepaid credit cards have blossomed at supermarkets, drugstores, and discount retailers across the United States over the past few years. Using the same technology that allows cashiers to dispense third-party gift cards, retailers can offer customers the convenience of turning cash into a credit card number that can be used online or overseas. However, a recent Consumers Union study uncovered some pitfalls of using prepaid credit cards:

  • Prepaid credit cards are actually debit cards or "shopping cards," marketed as credit cards to customers who prefer to avoid banks or cannot otherwise obtain traditional credit cards
  • Unlike secured credit cards, prepaid credit cards do not build histories with any of the major credit bureaus
  • Many prepaid credit cards carry activation, redemption, and reloading fees that can cost more than the annual fees of secured or subprime credit cards

Prepaid Credit Cards: Are They Worth It?

In situations involving personal privacy or urgency, such as surprising a loved one with a gift or bridging the gap between the replacement of a lost card, prepaid credit cards can be highly useful. Consumers Union and other personal finance advocates note that a bank account or a traditional credit card, even a secured credit card, can be more useful and cost-effective over time.

About the Author

joe

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.