Prepaid Cards Offer Alternative to Co-Signing For Credit Accounts

Do you have someone who wants you to co-sign for a credit account? Are you a parent with a child who doesn’t yet have an established credit rating, or do you have a friend or family member in a similar situation, or is recovering from a bad credit rating or unable to manage credit safely?

1.Using prepaid credit cards instead of co-signing for credit accounts

Beyond these two uses, prepaid credit cards can be a great way to help someone learn how to manage credit without having to co-sign for a credit account with them.  After all, it’s your credit rating that stands to get damaged, should the person you co-signed with default on a balance owed.

By offering the alternative of the prepaid credit card, which requires no co-signing on your part, you simply avoid any possibility of your credit rating getting sullied through no fault of your own.

2.How Do Prepaid Credit Cards Work?

Prepaid credit cards are really not credit cards in the strict sense of the word. There is no credit being offered by the card issuer. Instead, the cardholder or person managing the account (for example, a parent of child or adult child of an elderly parent) purchases the prepaid card for a small fee.  They then deposit money in the card account.

Purchases are then made on the card, which is deducted from the account, similar to how a debit card functions. The prepaid credit card can’t be used for any purchase beyond the amount left in the account, but still offers the ease of use of a credit card.

The advantage is that they carry the same brand as many major credit card companies such as Visa, MasterCard, and American Express. They can be used at any location that accept major credit cards (although exceptionally some stores have policies on accepting prepaid credit cards).

Another advantage is that, unlike typical credit cards, you do not pay any interest. There are purchasing and recharging fees although, plus many cards also have a monthly fee.

3. Prepaid Credit Cards are a good Financial Teaching Tool

According to a Wall Street Journal article, many parents are concerned that co-signing for a credit card or to even add them to their own accounts will cause problems. Not surprisingly parents want a way to control spending and prevent large balances from building up, especially when the kids are away at college or university.  Even a bank account with a debit card can accrue overdraft fees.

A prepaid credit card can be a ideal alternative. Without the inherent risks of a regular credit card, a prepaid credit card offers the limits that many parents want to establish when it comes to spending money. Being able to track payments online gives the person controlling the account the ability to monitor what the card is being used to pay.  The same can be done with elderly parents, to ensure against them being conned by fraudulent offers, or making inappropriate expensive purchases.

These cards do carry some fees but many people are willing to absorb the fees in order to have more control over their dependent’s spending. As parents are there to establish limits, these cards help them to do just that with their children.

4. A few disadvantages to prepaid credit cards

While there are a few disadvantages to prepaid credit cards, they are rather minor by comparison to the flexibility that they offer.

Be sure to review fees for some celebrity-type prepaid credit cards being marketed for children. There’s been some backlash over excessive fees.  The key here is to do your homework up front and find the best value.

Also, because prepaid credit cards actually use no credit (in some localities, they are actually marketed as “prepaid debit cards”), they cannot be used to build a credit history.  A prepaid credit card can therefore only be used to teach your child responsible credit use up to a point.  Once they have some experience, you can eventually move them up to a real credit card, or wait for them to establish credit on their own.

5.Getting Started

There are many companies out there that have prepaid credit card offers.  From major chains, to independents, there are plenty to chose from. You will have to decide which is the best option for you or your dependent.

Check out today's featured offers:

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Popular Credit Card Offers

			Interest Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Cash Advance Rate (p.a.)
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	ANZ Platinum Credit Card	An introductory interest rate offer on balance transfers and purchases, plus a $0 first year annual fee.	0% for 6 months (reverts to 19.24% )	0% for 6 months	$0 annual fee for the first year( $87 thereafter)	20.99%