Television advertisements have recently been flooded with celebrity endorsements for prepaid credit cards. Russell Simmon’s Rush Card and Suze Orman’s Approved Card are two prime examples of these new prepaid credit cards that offer to help consumers manage their money better than ever before. However, the perks offered by these cards may not always deliver as promised.
The idea behind prepaid credit cards is to allow consumers to put money on a debit card, which can be used anywhere VISA or Master Card are accepted. Boasting “no overdraft fees” or “credit limits”, these cards target consumers who overspend or have poor money management skills. By eliminating some of the penalty fees associated with a traditional credit card, these prepaid cards promise to keep consumers out of debt.
Sounds like a good idea, right? Critics of these cards are quick to point out some of the not-so-obvious drawbacks associated with prepaid credit cards. First, consumers must pay a monthly fee just for having or using the card. Second, consumers are also subject to large hidden fees for cash or ATM withdrawals and other transactions. Third, consumers must put cash or a direct deposited paycheck into the card in order to have money to spend, which essentially removes any element of borrowing money. Last, with no actual loan or money borrowed these cards do absolutely nothing to help create or boost a credit score.
Orman’s Approved Card is reporting that they will report transaction histories to the TransUnion credit bureau for purposes of contributing to a consumer’s credit. However, transaction reporting on a debit card is yet to be accepted by TransUnion as a suitable source for credit contribution. As of now, there is no guarantee that the Approved Card will be able to help contribute to, or be predictive of, a consumer’s credit profile.