Apr 11, 2009 7:00 pm US/Eastern
Pre-Paid Credit Cards Preach Responsibility
Good News Is You Can't Run Up Huge Debt, But If You Refrain From Using It Doesn't Show Up On Credit Score
NEW YORK (CBS) ―
You've probably seen pre-paid credit cards for sale at your local grocer, pharmacy or even gas station mini-mart.
Now, more and more shoppers are using these cards as a way to stay within their monthly budget, CBS station WCBS-TV reports.
Amanda Morin says she was over spending every time she went to the supermarket. So to help cut down on her bills Morin came up with the idea of using a pre-paid credit -- loaded with a lot less than she was used to spending.
"We've been pleasantly surprised in that we actually have come under budget and saved $150 a month," Morin said.
Once popular as last-minute gifts, credit experts say the troubled economy has the pre-paid cash card business booming. Consumers like Morin are now using them as a means to control their spending. The cards are also ideal for those who can't qualify for a traditional credit card.
"These cards, because they're loaded with the consumer's own funds, require no checks or balances relative to credit background," said Tim Sloane, director of Mercator Advisory Group.
The cards are backed by major issuers like Visa, MasterCard and Discover. They work like regular credit cards, except shoppers can only spend what is deposited on them. But as beneficial as they may be, experts say there are fees attached.
"You need to pay money to be able to acquire the card, and then there is a range of potential fees on the back end of that card that might be around a reload fee, a fee for using it at the ATM," Sloane said.
If a pre-paid card is lost or stolen, your money is protected as long as you report it in a timely manner, though there may be a replacement fee. But the process to dispute charges for unauthorized purchases or defective merchandise is harder.
"You have to look at the fine print that is associated with the card to understand what that issuer determines their role is in working a dispute with an individual merchant," Sloane said.
The other drawback is if you're responsible with the card, it doesn't reflect positively on your credit score, as a normal credit card would.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
Timeline: U.S. Credit Crunch & Financial Failures
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