What is a Prepaid Card?

6 min read

Last Updated: January 24, 2025

Table of contents

Key Takeaways

Unlike a credit card, a prepaid card must be loaded with funds before it can be used for purchases.
Prepaid cards don’t require an application or personal information.
Prepaid cards don’t help you build a credit history.

A prepaid credit card (also called a “reloadable card,” “prepaid card,” or “prepaid debit card”), like a standard credit or regular debit card, is an alternative payment method to cash. At first glance, it’s tough to distinguish between a prepaid card and a credit card. Many major credit card issuers also offer prepaid cards. Both cards usually feature the credit card company’s logo, a card number, and a chip or magnetic stripe on the card’s front. The back typically includes a security code and, potentially, the cardmember’s signature.

Like a traditional credit card or debit card, you may be able to use a prepaid credit card to shop online, over the phone, or in stores. However, unlike those similar payment options, you must load funds directly onto a prepaid card before making purchases with it.

How do prepaid cards work?

In order to use a prepaid card, you (or someone else, like an employer or the Social Security Administration) must first load the card with funds from another account. That deposit becomes its spending limit–if you try to spend more than that amount, your transaction won’t go through.

You might use a prepaid card like a credit card or debit card: you can check out at a store’s terminal or online, or withdraw cash from an ATM. But prepaid cards don’t allow you to borrow money or access a bank account. You can only spend up to the balance you’ve already loaded onto the card.

Each transaction comes out of the card’s balance–you don’t have to pay any bills or worry about accruing debt on purchases. However, prepaid cards also don’t build credit history.

How to load funds on a prepaid card

To keep using a prepaid card, you have to continue adding funds to it. You might do that in a few different ways.

If you receive your paycheck or government benefits like Social Security payments on a prepaid card, you may simply wait until your employer or government agency disburses funds.
You might be able to use direct deposit to direct some or all of each paycheck into a prepaid account. You may do this to help with budgeting.
Reload the card with cash or a debit card at a bank, credit union, or retailer.
Transfer funds from a checking account or savings account online or over the phone.
Purchase reload packs from a retailer.

Differences between prepaid cards and credit cards

While you may be able to use prepaid cards and credit cards interchangeably to pay bills or buy a coffee, key differences set the cards apart:

Prepaid cards limit you to the amount you load on the card

The defining feature of a prepaid card is that it only allows you to access the money you’ve already loaded onto it. This limitation may help you avoid overspending. For example, you might load your shopping budget for the month onto a prepaid card, so you can’t exceed the amount you’ve set aside. However, the spending limit may not work well for an emergency fund.

Prepaid cards may charge for use

The Consumer Financial Protection Bureau (CFPB) points out that a prepaid card issuer may charge fees based on variables such as the way funds are loaded, usage, or on other types of transactions, like checking your account balance. Some prepaid cards also come with a monthly fee. If you’re considering a prepaid credit card, be sure to keep these additional fees in mind.

Credit cards might also come with different fees, like balance transfer fees, late payment penalties, or an annual fee.

Prepaid cards don’t help you build a credit history

As you make purchases with an unsecured or secured card and repay your bill, your credit card issuer reports your activity to the major credit bureaus, who build your credit report. Responsible credit card usage may help you earn a good credit score.

Because prepaid cards don’t involve borrowing money, prepaid card issuers don’t report the activity to the credit bureaus. That means shopping with a prepaid card doesn’t impact your credit history or credit score.

Did you know?

While a prepaid card can be a convenient payment method, it won’t help you build credit history. If you’re just starting your credit journey, or you want to improve your credit score, you may consider a student or secured credit card that reports activity to the credit bureaus.

Learn More

You don't have to qualify for a prepaid card

A prepaid card is relatively easy to access. Many traditional credit card and traditional debit card issuers offer prepaid cards. However, you don’t need to have a bank account, credit score, or financial history to qualify for a prepaid card. As long as you have the money on hand, you can typically buy a prepaid card from a store, the same way you would buy a gift card. You may also get a prepaid card directly from a credit card issuer, bank, or credit union.

Because prepaid cards don’t require a credit check, they’re often a good option for people with relatively bad credit scores. But keep in mind that a prepaid card, unlike a secured card, won’t help improve your credit score.

Prepaid cards may not offer the same security as traditional credit cards

Traditional credit cards may come with extensive security features to keep your money and information safe, even if you lose your card. For example, Discover offers a $0 Fraud Liability Guarantee. You’re never responsible for unauthorized purchases on your Discover^® Card.¹ While prepaid cards come with some protections, per the Consumer Financial Protection Bureau, you’re unlikely to receive the same level of security.

Differences between prepaid cards and debit cards

Prepaid cards are sometimes called “prepaid debit cards.” Like prepaid cards, debit cards don’t offer access to a line of credit or build credit history. Unlike prepaid cards, however, a traditional debit card draws from a person’s bank account. If you use your debit card to spend more money than you have in your checking account or savings account, you may owe an overdraft fee. You can’t overdraw on a prepaid card. Once you’ve spent the balance, you can’t use the card again until you’ve reloaded it.

Despite some similarities, prepaid cards aren’t credit cards. Prepaid cards don’t build credit history or earn rewards. But a prepaid card might be a good fit in some cases, like if you don’t have access to a bank account or you want to prevent overspending.

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