Bank Card Without a Bank Account

If you have little or no credit, or are trying to establish credit, it can seem to be an impossible hurdle to obtain credit. It is a paradoxical situation – you need to have credit in order to obtain credit. One remedy that works for a lot of individuals is the idea of a collateralized bank card. With a secured bank card, you establish a bank account with the card’s provider and put up a cash deposit that will perform as collateral against your spending limit. Your limit will not exceed the amount of your balance, so the loan provider isn’t risking much. If you fail to pay your bills, the financial institution has your cash on hand to pay them.

Still, there are several disadvantages to the secured charge card. Interest rates are higher than for unsecured credit cards and there may be large annual fees associated with their use. The biggest drawback for a lot of individuals may just be the should have a bank account. For those who don’t have or want a bank account, what can you do if you need or wish a charge card?

The solution may be in the form of a prepaid bank card. A prepaid bank card doesn’t really involve “credit”, so the name is a bit deceptive. It is really a debit card that deducts your purchases from an account that you have established with the card’s issuing company. You sign up, provide a cash deposit, and your card is “loaded” with an amount equal to the amount of your deposit. You are then free to use the card as you wish, subject to the limit imposed by the amount of your deposit.

While you’re effectively paying your card’s bills in advance, the card seems to be a normal Visa or Mastercard, and no one will know the difference when you pull it out of your purse or wallet. Many corporations offer prepaid charge cards, and you should research them carefully and read the terms of their agreement carefully. One such firm will provide a card that will submit a record of your transactions to the major credit agencies, but not all of them will. This is an essential feature if you are young and are attempting to establish credit for the first time.

Fees for these charge cards can differ widely and can be huge. One company that we looked into had upfront costs of $197 – processing fees, application fees and a monthly fee to use the card of $3.95. This company also offered to report use to the credit reporting agencies, which is important for creating credit, but they will add an extra $19.95 per month for the service. We think you can do do better by doing a little study.

A pre-paid credit card isn’t the best way to establish credit, but if you have no bank account, it may be your only solution.