Let’s get real – we all know that a number of us in Canada have developed poor habits when it comes to spending. Despite the fact that our economy hasn’t done too bad in the wake of the economic crisis, many of us are still in a bad credit situation. This can leave us feeling a bit lost in life but also limit us in what we can do. Unfortunately, having a credit card isn’t only about having extra funds or earning points. There are many activities we can’t reserve or even do without one.
Granted, there are a lot of reasons why we may not be able to easily get a credit card due to a poor credit incident in the past, a lack of credit history or we may have been a victim of identify fraud.
Using a VISA or MasterCard allows us in Canada to have a convenient method of payment, helping us book hotel rooms, flights and take advantage of online deals. It typically isn’t that difficult to get a credit card these days but if you’ve developed a bad credit history it can be. Bad credit can develop from poor spending habits but sometimes it happens unexpectedly based on extraordinary circumstances. Unfortunately, when it comes to your credit rating, someone with bad credit needs to work extra hard to show that they can be trusted with a credit card. For this reason, many individuals have started to consider using prepaid credit cards for bad credit situations.
Background on Prepaid Credit Cards
Since these bad credit scenarios have grown over the past decade and many individuals have grown wary of using credit cards due to uneasiness with their financial stability, many Canadian credit card companies now offer prepaid card options. A prepaid credit card looks just like any other major credit card, often allow you to purchase items online and are typically accepted wherever standard credit cards are accepted.
There are two primary types of prepaid cards – anonymous prepaid cards that can be bought in stores as well as registered prepaid cards. Anonymous cards do not have a specific name attached to the card so are pre-loaded with the expectation that you will use them but can be technically used by anyone who is in possession of it. In contrast, registered cards are specifically for your own personal use.
Anonymous cards work great at physical locations but can be refused online due to not having a physical mailing address or name linked to them. These anonymous cards act very similar to gift cards as you would add funds to card through a recognized credit card firm such as VISA. Registered prepaid credit cards are associated with your name, address, phone number and other personal information. These cards can be used online and in stores with no issues whatsoever.
Benefits of Prepaid Credit Cards for Bad Credit
When thinking about an individual who has bad credit, the main benefit of using a prepaid card is that they offer the convenience of a credit card. Since you are loading the card up with existing funds from your bank account, you can almost treat the card as an extension of a debit card but operating under a credit card company to help you use it wherever VISA or MasterCard is accepted. Since these two firms are accepted in most retail outlets – online and offline – it can provide you with greater payment alternatives.
Since you preload your funds, you aren’t requesting any credit from the financial institution or credit card provider. Due to this fact, prepaid credit cards for bad credit make the most sense. You won’t have to go through any credit checks as you do with a standard credit card.
Prepaid cards also don’t typically have any annual fees or interest rates to worry about. The money you load is the money you spend. This will help you manage your money better but also assist you with minimizing additional charges due to interest. It can even save you money compared to using a debit card since many Canadian institutions charge you transaction fees for debit card for purchases.
For Canadians who have poor credit, there are a number of instances where prepaid cards can be useful. This includes online shopping and buying gifts. Getting a prepaid credit card can be useful for taking advantage of online shopping. In Canada, many consumers are unable to use debit cards to pay online, so prepaid credit cards can enable them to shop easily and experience the benefits from online purchases. For buying gifts, prepaid credit cards can also work well if you want to purchase gifts for others. Although this isn’t specifically related to addressing bad credit, it can help those bad credit to purchase gifts in a manageable way.
Areas to Consider
When it comes to prepaid credit cards, some people state that although prepaid cards are sponsored by VISA or MasterCard, the credit card doesn’t work as one at all. A traditional credit card is where a Canadian financial institution extends credit to you and a prepaid card doesn’t do that. They don’t offer you credit, as you load the card with funds before you use it.
Another area for individuals who are considering prepaid cards is to understand that they carry a number of restrictions compared to standard credit cards. Although you’ve loaded the card with your own money, you may not be able to withdraw the money easily from a bank account, use it outside of Canada and there may be a timeframe of when you need to use the funds by.
Finally, it’s important to understand that if you get a prepaid credit card, you won’t be able to build a positive credit rating to repair your bad credit from holding one of these cards. The Financial Consumer Agency of Canada (FCAC) says prepaid cards do not boost credit scores in any way.
Prepaid credit cards can be a positive alternative if you unfortunately have bad credit and want access to retail outlets that MasterCard or VISA services. Although you won’t improve your credit score, you’ll at least be able to enjoy some of the benefits of a credit through this prepaid option.