The pros and cons of prepaid debit cards

Debit cards are arguably the easiest way for consumers to purchase what they need and be on their way. And prepaid debit cards are convenience on overload. In fact, in 2016, nearly 40 percent of Americans used prepaid debit cards both online and in stores, according to Blackhawk Network, which was nearly often as shoppers used gift cards.

Aside from their expediency, prepaid debit cards have the added benefit of controlling debt. Users simply contribute the amount of funds they want their card to carry and draw from it wherever they're honored, which is increasingly growing, given their practicality. In fact, at least 10 major banking institutions have issued their own prepaid cards over the past several years, The Wall Street Journal reported. But the unbanked and underbanked have access to them as well, offered by credit card companies, big box retailers and e-commerce organizations, just to name a few.

That being said, no payment avenue is perfect and the same is true for prepaid debit cards. Here are some of the pros and cons to be mindful of before swiping. First, here are some of the lesser lights:

Can't be used to improve credit score
The beauty of buying with plastic or some other form of credit is it can help you increase your credit score, provided you pay it off on time. But this isn't the case with prepaid debit cards. None of the major credit bureaus use them for reporting purposes. And by the same token, neither do regular debit cards.

Fees may apply
Consumer experts warn buyers about hidden fees that are often associated with signing up for a credit card or some other payment service. Though this isn't always the case, prepaid debit cards may be attached with fees, so it behooves you to read the fine print before signing up for one. Fees may be ongoing, such as a monthly service charge, or one-time only.

Not universally accepted
Although more businesses are both offering and honoring prepaid debit cards, they're not as widely accepted as major credit cards and standard-issued debit cards. Credit.com noted accommodations services usually don't let customers use them for booking purposes.

Pros

Come with improved consumer protections
In the past, critics of prepaid debit cards warned they didn't have the appropriate level of protection to deter scammers. But that has since changed thanks to the Consumer Financial Protection Bureau. Now, issuers are required to supply "clear, upfront information" about fees that attach when used.

"Many consumers rely on prepaid cards to make purchases and access funds, but until now they were not guaranteed strong consumer protections under federal law," said CFPB director Richard Cordray. "This rule closes loopholes and protects prepaid consumers when they swipe their card, shop online, or scan their smartphone."

Reduce risk of identity theft
Identity theft is a major issue that the Federal Trade Commission has warned consumers about what can happen when credit cards and Social Security numbers fall into the wrong hands. But prepaid debit cards can keep buyers protected. If stolen, the damage is confined to whatever funds are available on the card.

Not subject to prior credit approval
The credit approval process can be lengthy and tortuous, which may be a problem for the underbanked or unbanked whose credit may be limited or non-existent. Prepaid debit cards generally don't require a credit check, so the approval process is quick.

At Microbilt, we specialize in alternative credit data, providing more opportunities for both businesses and consumers to stretch their dollar further and increase their options. Many payment means fall under the alternative credit umbrella, including account types, application inquiries, rent expenses and even driver's license information