Credit Authority Staff

 

Credit-Authority features a large number of reviews of the best credit cards in the market, but what about people who have no credit or who might currently struggle with a credit check?  For them, we concentrate in a number of credit tools specifically for helping them get their finances back in line - and the American Express Serve card is one of our favorite options in the prepaid debit card category. 

What is a prepaid debit card?

Prepaid debit cards, like the American Express Serve, offer an easy way for people to leverage many of the benefits of American Express without having to go through a credit check.  This is possible because the American Express Serve card draws from a prepaid account or from a credit card in order to issue funds, and doesn't actually take a credit risk on its cardholders.

How is this American Express prepaid card different from credit cards?

Credit cards built specifically for people who are rebuilding their credit, like Secured Credit Cards, may require users to put down a deposit in order to access a certain line of credit.  The key differentiator is that they will have a line of credit and do not need to pay with money currently in their account, whereas the American Express prepaid card works much more like an American Express gift card, where users will have a limited pool of money that they have deposited directly into the account for using the card.

American Express Serve Prepaid Card or a Secure Credit Card?

Many consumers find themselves in the situation of comparing prepaid cards to secured credit cards - when in reality, these two different types of credit products solve very different problems.  Prepaid cards, like the American Express Serve, give consumers the ability to consolidate all of their spending into one place. They could also function as a tool to regulate allowances or transfer funds among friends, much like a Paypal account or services like Venmo. Prepaid Cards also provide access to many of the benefits that other American Express products might, like roadside assistance or American Express travel services.  Ultimately, we'd say that prepaid cards' benefits break out as follows :

Prepaid Cards

Pros Cons
No Credit Check Doesn't help build credit score
No Interest Payments No Credit Line
No Monthly or Annual Fees $2 fee for ATM withdrawals


Secured Credit Cards, on the other hand, offer the ability to put down a single deposit and then use the card up to the amount of the deposit over time.  This offers a significant amount of flexibility - but can also come with significant pitfalls like high interest rates or substantial fees.  Find our breakout of the advantages and disadvantages below : 

Secured Credit Cards

Pros Cons
Access to a Line of Credit Often have monthly or annual fees
Help build credit score Often charge substantial interest rates on balances
Ability to pay off charges over time Application Process with some kind of credit check

As you can see, while prepaid cards like the American Express Serve offer the convenience of being able to pay with a card and use ATMs, they don't actually offer a line of credit.  This is significant, as many people who cannot qualify for credit cards often look to debit cards or a prepaid card as an alternative.  This isn't always the best idea because it doesn't get them any closer to qualifying for a credit card in a credit check.

Secured credit cards, on the other hand, offer access to a line of credit and generally have a very lax credit check.  But because they're willing to extend the card with a very lax credit check, secured credit card issuers also tend to charge substantial interest rates for any balances maintained on the card.  When combined with annual or monthly fees, the interest rates can make secured credit cards quite expensive.

Ultimately, we at Credit Authority are of the opinion that secured credit cards are worth it when used responsibly.  If cardholders can pay off their balance on a timely basis they can avoid the often 20%+ interest rates charged by providers, they'll gain all the advantages of a prepaid card with the credit card company on top of establishing a line of credit.  Additionally, cards like the Capital One Secured Mastercard provide automatic reporting to the major credit bureaus, providing cardholders with the ability to monitor their credit score with each credit union.  This is a key first step in getting past the credit check required for more exclusive credit cards.

Conclusion

Prepaid Cards, like the American Express Serve Card, provide a great way for people to consolidate their spending through a trackable platform or transfer money to their friends.  But ultimately a prepaid card is similar to a custom gift card - it's not actually a credit tool, it's a convenience tool.

For people interesting in rebuilding their credit score and gaining access additional funds, we'd recommend looking at our review of the Best Secured Credit Cards.


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