Prepaid Credit Card Definition

A prepaid credit card is a credit card with a positive balance established by prepaying the credit balance. The prepayment is usually made at the time the prepaid credit card is obtained and is then supplemented from time to time. All payments typically incur a finance charge of about $5 apiece.

The prepaid credit card can be used like a standard credit card so long as purchases do not exceed the prepaid amount; as charges are incurred, the amount is deducted from the prepaid balance. When the prepaid balance hits zero, future charges are refused. Prepaid credit cards are popular with individuals who are unable to obtain a standard credit card because of, for example, a poor credit history.