Jun 27, 2013 Sean Albert
Prepaid cards provide a good option for consumers with poor credit, and with many Americans knowing little about their scores, this market could receive a boost in the near future.
According to a survey released by the Consumer Federation of America (CFA), a large number of Americans have a limited knowledge of credit scores. For example, two-fifths did not know that credit card issuers and mortgage lenders used scores to make decisions about credit availability and pricing.
Meanwhile, 43 percent said that their age had an impact on their credit scores and 40 percent had the same belief about their marital status - both not true.
"Credit scores have become so influential in the lives of most consumers that tens of millions are severely disadvantaged by their lack of knowledge about these scores," said Stephen Brobeck, CFA's executive director. "Low credit scores will often cost car buyers more than $5000 in additional finance charges and cost home purchasers tens of thousands of dollars in additional mortgage loan costs."
Consumers with poor credit may turn to prepaid cards
With Americans confused about their credit scores, there is a good chance they will participate in behavior that can damage their rating.
As a result, many may have to turn to prepaid cards, which would provide a boost to the industry. In fact, the Pew Research Center's Prepaid Cards Research Project recently found that consumers are expected to load more than $200 billion on prepaid cards in 2013, up from $28.6 billion in 2009 - greater than a 600 percent increase.
In response, many of the nation's banks have made a shift toward these types of offerings, and they have tailored them to draw in consumers as competition in the market has picked up.
"Some of the large national and regional banks that started to offer these cards recently have lower fees and a pretty transparent fee structure," Greg McBride, Bankrate.com's senior financial analyst, told Today. "They often have just one monthly fee and they allow the cardholder to use the bank's ATM network for free withdrawals and its branches for free reloads."
With the prepaid card market growing, financial outlets may want to increase their offerings of this alternative payment system. This market could even expand further in the future as more consumers view prepaid cards as an alternative to credit cards and checking accounts.