Published March 28, 2011
The term “prepaid credit card” is inherently flawed, there isn’t a single prepaid card currently on the market that provides a line of credit.
However, “prepaid credit card” is still a more frequently searched term online than “prepaid card.” While it might be easy to simply chalk up this title misappropriation to mere confusion about what a prepaid card is exactly, doing so would be to tell only a small part of the story.
A prepaid credit card is not a credit card, it’s also not a debit card. Rather, it is a substitute for a checking account; an alternative for consumers who do not want, or cannot qualify, for such an account, for whatever the reason. In using a prepaid card, consumers can deposit their paychecks, load money at thousands of locations including gas stations and grocery stores, make purchases, pay bills online and withdraw money from ATMs.
However, to some users, it doesn’t matter that prepaid cards do not provide lines of credit and are not reported to the major credit bureaus. As far as they’re concerned, if it’s a plastic spending vehicle, it’s a credit card--much like how many consumers refer to Visa (V) or MasterCard (MC) as their credit card companies instead of Capital One (COF)or Chase (JPM). But the lack of proper categorization does not sufficiently explain why so many people are talking about a non-existent credit/prepaid card hybrid.
Prepaid card issuers actually play a prominent role in cultivating the idea of the prepaid credit card because it makes their products seem more attractive, thereby spurring sales.
A prepaid card offers guaranteed approval and does not require an initial deposit. Combine that with a line of credit and the ability to build or rebuild credit standing and you’ve got a fairly ideal product for people with bad or limited credit. This is especially true considering that a security deposit of at least $200 is required to open a secured credit card, which is the best credit card option for people with bad credit. As a result, prepaid card companies refer to their products as prepaid credit cards to make it seem as if they provide the best attributes of both a credit card and a prepaid card.
Knowing this it's clear “prepaid credit card” is not a term simply thought of and perpetuated by undiscerning consumers. It is a term validated if not inspired by issuer misinformation, and one needs to look no further than the actual search engine results for “prepaid credit card” to find substantiation for such a claim. No message appears asking if you meant to type only “prepaid card.” Instead, results appear that frequently mention a product that does not exist.
To be fair, actual prepaid card product listings make no mention of credit cards, and the fine print clearly states that a prepaid card is not a credit card. However, as we all know from personal experience, the fine print often goes unread.