How Do Prepaid Credit Cards Work?

Pre-Paid Credit Cards

Pre-paid credit cards are credit cards in which the owner of the card deposits funds with the credit card issuer to be accessed via the card. This is in contrast to a traditional credit card in which the credit card issuer gives the user a card without receiving any money in advance.

Using a Pre-Paid Credit Card

A pre-paid credit card works very much like a regular credit card. When the owner of the card wishes to make a purchase, they present the card to the merchant. The merchant uses their standard procedure for accepting credit cards of any type. This often involves swiping the card through a terminal. In this case, the terminal is connected to a network that allows the card to be approved or declined. In the case of a pre-paid card, the amount of the purchase is compared to the amount of funds remaining from the original deposit. If there are sufficient funds available, then the transaction is approved. The amount of the purchase is deducted from the funds that were originally deposited with the credit card issuer and the remaining funds become the card's new balance.

When The Balance Reaches Zero

When a pre-paid credit card user has exhausted all of the funds originally deposited with the credit card issuer, all further transactions will be denied. Depending upon the issuer, the user may deposit more funds, in which case, the process will start over with the new balance.

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