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Credit Card Applications » News » Other » Consumers Switching to Prepaid Credit Cards

Consumers Switching to Prepaid Credit Cards

December 15, 2009
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People can see it on YouTube, Twitter, and just about anywhere in the Internet - consumers are no longer happy with their banks. Major card issuers have been cutting debt limits without warning, raising interest rates, and even writing off clients for seemingly small reasons. Now, consumers are finding a way out of traditional bank accounts and credit cards in favor of a more versatile plastic: prepaid cards.

Consumers usually purchase them from retailers and load them with money so they can be used at checkout counters or to pay bills online, just like traditional credit cards. Consumers may also load their cards from directly deposited paychecks, giving them more options in terms of payments. However, what makes prepaid card issuers successful are an advertisement phrase financial institutions normally do not use: no credit checks necessary.

Since consumers pay for their cards before using them, companies will not charge them with high interest rates if they have poor credit rating. So it is no wonder why profits by such companies have more than doubled last year compared to its preceding year. Consumers loaded $8.7 billion when recession heightened in 2008, up from about $4 billion in 2007.

American Express, Visa, MasterCard, and Discover are the major issuers of this new type of plastic. According to Mercator Advisory Group, a financial research firm which focuses on the payment industry, such cards can be used anywhere which makes them more appealing to consumers.

However, advocacy groups warn that the cards carry an assortment of fees, which could be heavy on most people's pocket. Nevertheless, prepaid credit cards have become popular to those who cannot get traditional bank accounts, immigrants in particular who do not yet have sufficient credit history to earn the trust of banks. Some experts say it is a better option for them, instead of relying on expensive cash-checking institutions.

High credit card interest rates and bank overdraft fees are also major reasons for many consumers to look for better alternatives. Additionally, college students are increasingly using prepaid cards, their numbers are expected to go up next year when students below 21 years of age cannot sign up for a credit card without an adult co-signer.

Those cards used to be stepping stones toward getting regular bank accounts, but with their increased functionality, experts say they are no longer far from getting into the financial mainstream. Finance analysts add that those cards also prevent consumers from racking up debt unconsciously, since they cannot use prepaid credit cards unless they load it with money.

However, advocates advise consumers to be very cautious since activation fees alone could go up to $100 for some issuers.

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  • Larry
    With the Virgin / Barclaycard signature offer, there seems to be some consumer deception or maybe even outright fraud goin on.   I decided to jump on this offer..  read all the info on it..  was approved for their platinum card, paid the fee, then was only awarded 10,000 points instead of the advertised 20,000.   When i inquired about the less than advertised bonus points, Barclaycard claims only Signiture Visa cardmembers get the 20,000..  as a platinum cardholder, you don't qualify for that level of bonus, so you get 10k instead.   Well, in their current ongoing promotions, it states plain as day that....    Applicants approved for the Visa Signature or Platinum Card with $49 annual fee will receive 20,000 Bonus Points awarded to your Virgin America Rewards Account at the close of the first billing statement in which you make your first purchase or balance transfer (that is not returned or rescinded) and have paid the Annual Fee on the account (and such fee is not rescinded). They don't mention anything about a separate program for platinum cardholders..  However, trying to get someone to resolve this issue with either Virgin or Barclaycard seems to be rather impossible.. Seems to me they're simply drawing people in with the fraudulent offer, then simply saying, oh, we're sorry you don't qualify..  but thanks for signing up for our garbage credit card with insane fees..   
  • CreditLandCom
    Thank you for sharing your experience with us. We have reviewed this offer and you are correct, nowhere it is mentioned that 20,000 Bonus can become a 10,000 Bonus all of a sudden... We will mention this in our review of this card so others can make an informed decision. Another way to get Virgin miles is to get an American Express charge card: The Business Gold Rewards Card® now offers 50,000 Miles, though you do have to spend $5,000 in the first three months of card membership to get it. It also has $0 introductory annual fee for the first year, then $175. http://www.credit-land.com/details/the-business-gold-rewards-card-from-american-express-open.php Premier Rewards Gold Card now offers 25,000 Miles, though you do have to spend $2,000 during your first three months of Card membership. It also has annual fee of $0 for the first year, then $175. http://www.credit-land.com/details/american-express-premier-rewards-gold-card.php While we do not know If any of these offers make sense to you, we are at least sure that you will get advertised bonus in full if you decide to get them... Conversion rates for Virgin America are: 100 Elevate Points = 200 Membership Rewards® Points All the best.
  • Deborah Ellsworth
     would very much like to start a new credit history  by making payments on time I would tohave a credit card that is NOT PREPAYID! I don't need a card with a high limit just something to start a new credit history. Thank You Deborah Ellsworth
  • Deborah Ellsworth
    I would very much like to start a new credit line to get back on track. I DO NOT WANT A PREPAID CARD!! This new credit card if I am approved does not have to hace a high limit just something for me to start over again and prove myself ThankYou. D Ellsworth
  • Miss Edna
    there is a huge problem with the RFIP chip: it is easily compromised. There are already 'readers' in the form of what looks like a cellphone in a case, that scans all the info in the chip by merely walking near a person -- this 'reader' penetrates leather, cloth, spandex, etc. The only thing it will NOT penetrate is METAL. Perhaps one has seen commercials touting metal credit card cases. Here is my hint for a free fix: cut a piece of aluminum foil or use the foil that is used to keep foods fresh, like coffee. Cut it so that when folded once, it forms a sleeve for your credit card. place the credit card in the sleeve, then place the sleeve in your wallet.
  • Robin Parks
    I am looking to apply for the AARP Visa signature card from Chase that offers $100 after spend $500 in first 3 months, no annual fee and 0% interest first year; I don't want to mail in offer because of having to write in Social security #. Can you direct me to the proper on-line site?
  • CreditLandCom
    The Chase bank cards are not currently available at Credit-Land.com, but you can consider applying for the Citi® Dividend Platinum Select® Visa® Card - $100 Cash Back. The cards has similar terms and cash back program.
  • Becky
    This is Becky Now what do I do just waqit for acard to come to me?
  • CreditLandCom
    Once you have applied, you should receive a letter within 10 business days letting you know if you were approved and when your card will arrive. If you did not receive any letter or notification from the issuer, you should contact them directly. Also, you should contact the issuer if you’ve been waiting for your credit card longer than 30 days. Since we are not a bank and don’t issue credit cards, we cannot give you any information about your application or credit card.
  • SavingStar
    Thank you for posting about SavingStar. Just to clarify one sentence in your article, we have over 5 million members (not 500). Thanks, Josh
  • CreditLandCom
    Sorry for the misprint. We’ve corrected the sentence. Thank you for noticing that.
  • Eric
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