According to the CFPB, the three main credit bureaus used by most lenders do not include your prepaid card usage in your credit report. The prepaid card providers that claim to report your credit history usually only report to smaller used credit reporting agencies and not one of major three agencies.
The terms and conditions may be long and confusing, but it is important to read these before you get the card so you will know where your money goes.
When a prepaid card or gift card is unclaimed for a designated period, some states have escheatment laws that require the issuer to send the funds to the state of the last known address. The state can take custody of the card and add the value to the treasury's general fund until it is claimed by the rightful owner. The time of abandonment varies by state, but is typically two to five years.
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.
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.
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.
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.
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