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Prepaid Card Popularity Merits Caution From Consumers

When you use a prepaid card, you are using your own money that you have already put on the card. Using a credit card is receiving a loan to make a purchase.

  • Almost anyone can get a prepaid card--all you need is identification to prove who you are.

  • Credit checks are not used and your credit score does not matter. You will have to provide name, address, date of birth, Social Security number or another identification number. Non-citizens may also get a prepaid card if they have an identification number.
  • Most prepaid cards are reloadable.

  • Your employer can deposit your paycheck directly to your prepaid card and you can also receive government payments on your card. You can buy reload packs at many retailers like Wal-Mart and CVS, then enter the reload value online and the funds are immediately available.
  • Know your ATM networks and fees.

  • You can use your prepaid card to withdraw cash at ATMs but the fees can add up if the ATM is out of your network. You will also have to pay any fees that the ATM owner charges.
  • Your prepaid card will be accepted by most places that accept a credit card, but it may be treated differently and you may need to plan ahead.

  • If you use your prepaid card to pay for gas at the pump, rent a car, or pay for a motel room the merchant may put a hold on your account for the amount of the transaction plus up to 20% to make sure there are sufficient funds to cover the purchase plus tips and other expenses. The hold is removed after payment is received. It can take from 15 days to 90 days for the hold to be removed. During the hold period, you will not have access to the preauthorized amount.
  • Prepaid cards can be used for international transactions, but pay attention to fees.

  • There may be a 3% fee for foreign transactions (just like a standard credit card) and fees for ATM withdrawals.

    --By Bill Hardekopf

    Hardekopf is CEO of LowCards.com, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

    Follow him on Twitter: www.twitter.com/lowcards

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