A reader wonders if someone can fraudulently access money from his prepaid card using the card number.
You may have opted for a prepaid credit card if you wanted to avoid going through the credit card application process, for one.
It’s easy enough to just buy these cards that have a certain amount of money loaded on them. Reader Edward has a concern about his prepaid card. He wonders, “Can someone access money from your prepaid card if they know your card number?”
Convenience of prepaid credit cards
Once you buy a prepaid credit card, you can use it like a regular credit card at checkout. Your purchase amount will be taken off your card balance. They’re easy to get even if you don’t have a bank account and can be purchased from retail outlets.
And if you have poor credit and still want the convenience of not carrying cash around, you could also opt for a prepaid credit card , or even a secured credit card. While you would also pay money upfront to get a secured credit card, it is different from a prepaid credit card. You would have to apply for a secured credit card, for instance. You could also get paid interest on the money you deposit for your secured credit card, according to the Federal Trade Commission.
Also note that a secured credit card could factor into your credit history, whereas a prepaid credit card typically does not.
Credit impact of prepaid card
Considering that you are not borrowing money when you use a prepaid credit card, your use will not impact your credit score. This is different from when you use a regular credit card and your card issuer is essentially lending you the money upfront to be paid when your card statement arrives. At that time, you’ll pay off the balance or make at least the minimum payment to keep your account in good standing.
The issuer will report the timeliness of your card payments to the credit bureaus so that they can get a picture of how financially responsible you are. That would impact your credit score. Since your prepaid card activity is not based on borrowed money, it is not being reported to the credit bureaus and will not impact your credit score.
Once the money on the card runs out, you can’t use it without reloading it with additional funds, if the card permits that.
Prepaid credit card protections
The Consumer Financial Protection Bureau initiated protection for prepaid cards in 2019. The new rules require card issuers to make disclosures about the fees they charge for use of these cards. They also provide certain protections against unauthorized charges.
Your card issuer could offer additional protections, such as a zero liability protection. For instance, the Mastercard network promises that you won’t be held liable for unauthorized transactions provided you have “taken reasonable care in protecting your card from loss or theft.”
You should register your card with the issuer so that you can avail of such federal and card issuer-provided protections if you have to resort to them. You should also call the card issuer immediately to report any unauthorized access, if you have lost the card or if it has been stolen.
If the bank that issued your prepaid card fails, you may also be able to avail of Federal Deposit Insurance Corporation protections. The FDIC will make good on up to $250,000 of the money in your bank account in case a bank goes out of business. Credit unions also offer such protections through their own insurance programs.
In the case of prepaid cards, monies loaded on these cards are held in pooled accounts. One requirement for these prepaid cards to receive FDIC and credit union insurance protections is that the financial institution maintains records identifying the individual cardholders.
The CFPB rules require card issuers to inform you at the time you buy your prepaid card whether it is covered by such insurance. This information could also be provided with your cardholder agreement.
Edward, while it is possible for someone to make fraudulent use of your prepaid card, you do have certain protections in these situations. Don’t forget to register your card with the issuer to avail of them.
Contact me at firstname.lastname@example.org with your credit card-related questions.