Bad Credit and Debit Cards

Posted on September 10, 2009
Filed Under Credit

What’s the measure of bad credit? It may surprise you, but there is actually more than 1 way to measure whether or not you have good or bad credit. None of them are perfect because they only reveal part of the picture but individually or in combination, they can give you a pretty good idea of where you stand on the credit totem pole.

The most well know of course is your FICO score. This is the semi-mysterious score put together by the Fair Issac Corporation (FICO) which measures your credit worthiness. I say “semi-mysterious” because the core details of how they go about measuring your credit are kept secret. In any case, this score is used (in part) by lenders to determine whether or not they want to extend you credit. The FICO range is from 300 to 850 and if your score is in the mid-500’s or lower your credit is generally considered poor to bad.

Another, more subtle way to measure your credit is to examine your credit bills and payments over the course of the last several months. Has your credit card APR or your minimum payments been raised? Has your credit limit been lowered? These are signs that your lenders don’t feel as confident about your credit worthiness as they have in the past. And when they don’t feel confident, you effectively have bad credit.

Of course, there is a very clear-cut, objective way to see if your credit is bad. You can apply for a credit card or loan and see what happens. If you’re denied, then by definition you have bad credit.

But how can you get by in today’s modern, technologically immersed world without credit and especially without a credit card? Are you forced into carrying cash around with you in large sums all the time? Do you have to forgo buying anything online? Do you have to pay large fees to check cashing companies just to get at your cash?

It turns out that the answer to all of those questions is no. That’s because there is a particular financial tool that’s available for those with bad or no credit. It’s easy to use and extremely flexible. It’s the prepaid debit card.

Prepaid debit cards were invented to serve the “underbanked.” These are the people in our society that don’t want a bank account or have been refused access to one. They still work and contribute to society and they still need ways to cash payroll checks, pay for goods and services, and keep track of their spending. Prepaid debit cards allow them to do just that – because you don’t need credit to get a prepaid debit card.

That’s right, you can have the best credit or no credit at all and still get a reloadable prepaid debit card. All you have to do is purchase one and then load it up with whatever amount of cash you wish. Then you spend that cash with the card just as you would with any credit card on the planet. That means you can load up your debit card from your payroll check and avoid heavy check-cashing fees. It means you can buy your groceries, clothes, and just about anything else just as you would with a credit card. And you can keep track of everything you buy easily too.

You can keep the card as long as you want and reload it with cash any time you want. You can also spend all the cash on the card and then throw it away; you’re choice. You can use a prepaid debit card at ATMs, online, or at your local dry cleaner. But there are some other benefits too.
Since you’ve loaded your money onto the card ahead of time, you’re not going to be able to over-spend, so you won’t go further into debt. Also, you will pay no interest charges with the prepaid card because credit isn’t involved.

Now a prepaid debit card will not help you repair your bad credit and there are some charges associated with using one of these cards. For instance, you will pay up to $10.00 for the card itself and each month there will be a maintenance fee of $3.00 to $6.00. Plus, every time you load money onto your debit card you’ll be charged a reload fee anywhere from $3.00 to $7.00.

But the good news here is that this financial sector is really heating up competition-wise and these fees are dropping. For instance loading your card directly from your payroll check (e.g. Direct Deposit) usually carries no fees. Also, whatever you pay in fees to keep the card open each month is usually a lot less than what you’d pay in interest charges each month on a credit card.

So bad credit doesn’t have to be a complete end to your financial life. There’s a tool out there that can server your needs quite well while you’re working at getting your finances back in order. In fact, prepaid debit cards may work so well for you that you may not ever need a credit card again.

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