The prepaid card business is booming now that banks are ratcheting up the fees on checking accounts to all-time highs. Should you get a prepaid Discover card instead? Consider these 3 things…

1. Acceptance of Discover

When it comes to Discover credit cards, I know the #1 hesitation people have in applying is that they worry it won’t be accepted in many places. But nowadays, nothing could be further from the truth.

Did you know that Discover cards are accepted at over 90% of places that take Visa/MasterCard? So if you live in the US, over 90% of merchants that allow credit card payments will accept Discover.

For ATM transactions (like getting cash) there are over 675,000 locations:

PULSE is one of the largest ATM networks, so you shouldn’t have any problem finding one where you can use a Discover prepaid debit card. For example, I searched on their site and found 41 locations for a rural zip code in Michigan. When I searched Los Angeles, I got 1,468 results.

Conclusion? Acceptance at over 90% of retailers + tons of ATMs = plenty of places!

2. Features/Benefits

The benefits can vary by card, but here are the basics you can expect:

• fraud protection for unauthorized charges
• cash access through ATMs or at stores that will do cash back
• account monitoring through Discover’s website or the issuer’s website
• reload options

Conclusion? Pretty basic. These are on par with what Visa and MasterCard offers. The best benefits are on the prepaid card from American Express because it gives you free protection against eligible items that are stolen or accidentally damaged during the first 90 days from date of purchase.

3. Pricing/fees

As we all know, prepaid cards are notorious for charging outrageous fees. Will you get that with Discover?

The answer isn’t black and white.

You see most Discover prepaid cards are actually issued by another bank… and that bank is the one who decides the fees. To give you an idea of what’s out there, here are a couple:

Young Money Prepaid Card – Launched back in 2011, this is branded by Lil’ Wayne and issued by MetaBank. Review the fees for yourself:

So basically you’re paying a one-time fee of $6.95 to get the card, then an on-going monthly fee of $3.95. The reload fee can be avoided if you do direct deposit instead to load your funds.

It’s not the worst prepaid card on the market, but it’s not the best either. The biggest drawback is that you don’t get any free ATM withdrawals (they’ll always cost $2 a pop).

nFinanSe – Issued by First California Bank, I’ve heard of employers using this for payroll. A couple years ago there was someone on the forum complaining about them. Here are the fees:

It looks like you would be paying a lower amount than the Young Money card, but it’s still not exactly what I would call a bargain.

Worth getting or not?

So should you apply for a prepaid Discover card? Well they’re somewhat better than the average prepaid card. However even with that said, personally my vote would be a “no” and I say this for a few reasons:

1. If you’re going to get a prepaid card, then the one from American Express is probably the best deal. It has the most benefits and in my opinion, the most reasonable fee structure.
2. Prepaid cards don’t build credit. If you don’t mind that, then go ahead and get one. But if you want to build credit, I recommend checking out secured cards. No matter how bad your credit history may be, you still might have a chance with them.
3. Keep in mind that due to the Patriot Law, your Social Security number is a requirement for all prepaid cards. So if you’re going to go through all that hassle of verifying your identity, then why not just go for a secured card instead?

Q: Every credit card I’ve had has either been a Visa or MasterCard. I’ve seen those commercials for 5% cash back from Discover but I have no experience using them. Is Discover card good to have or not?

A: In my personal opinion, yes. I’ve had an account with them for 4 years now and am quite satisfied. But on the flip side of the argument, the word “good” is subjective and as with any credit card, it’s impossible to make everyone happy. I’ll present you with the facts so you can draw your own conclusion.

Part One: The Customer Service

One of the things that really impresses me about Discover is their customer service. Unlike most banks, they are based in the US and when you call, they actually tell you where they’re located. From my experience it’s usually their Utah or New York call center (and yes, they’re actually telling the truth).

Because I’m so busy with work during the day, typically my customer service calls (for everything) tend to be at night, like 10 or 11 pm Pacific. Calling at that time is really the ultimate test for a company, because most will hire zombies for the graveyard shift. However whenever I’ve called Discover, my experience is the opposite: good service reps no matter what time I call.

But don’t take my word for it… recently J.D. Power & Associates ranked AmEx and Discover as the 2 top-rated credit card companies for “customer interaction.”

Part Two: The Rewards

Is Discover credit card good for rewards? Yes, as long as you understand how they work.

In fact their More card actually offers the best deal for certain categories of spending. The reason for this is your 5% cash back is worth even more when redeemed for partner gift cards. Read this Discover More review to learn more.

On the downside, for non-category spending (purchases which are not part of the 5%) there is a tiered system in place: 0.0025% (1/4%) cash back on the first $3k in annual spending, 1% after that. So that means you’re earning $22.50 less on that first $3k, then you would if you were earning a flat 1%.

For these reasons, I primarily use the card for the bonus categories and online purchases thru ShopDiscover (which also offers bonus cash back). For other spending, there are different cards I prefer to use.

Here are the reward details for their other cards:

• Open Road Card (no annual fee, 2% on gas + grocery)
• Escape Card (2% rewards value on everything, $60 annual fee)
• Miles Card (no annual fee, at least 1% rewards value)

Part Three: The Benefits

On the no annual fee cards (More, Open Road, Miles, Motiva) the benefits are middle of the road and comparable to what you will find on most other credit cards:

• Travel Assistance – You can call 1-800-DISCOVER for help with things like passport and travel document replacement, emergency medical referral (helpful if you’re in a foreign country), emergency cash access, and help replacing lost/stolen tickets. Keep in mind Discover doesn’t pay for these services, they just help arrange/advise.
• Insurance Benefits – There’s car rental collision damage insurance (secondary coverage) and flight accident insurance for airline tickets. To qualify you need to pay for the rental or airline ticket with your Discover card and follow the rules.
• Account Management Tools – Calling these special would be a stretch, but Discover probably does have the best online account interface. Very easy to use and tons of budgeting tools for analyzing your spending.
• Cash Over Benefit – Now this is a unique perk… you can get cash back at the register when you use your card at participating retailers. Similar to how you can get cash back when paying with a debit card. There is no other major card out there that offers this.

On their premium card, the Escape, you get a number of extra benefits. The third one is fairly common but not the top two:

• Rental coverage is primary, not secondary
• Trip delay/cancellation insurance for eligible circumstances
• Damaged/lost luggage insurance

Part Four: Card Acceptance

Contrary to popular belief, Discover now actually has good acceptance – over 90% of merchants in the US who accept Visa/MasterCard also take Discover.

On the other hand, their international acceptance could use some improvement. But the no foreign transaction fees is a nice perk.

Part Five: Approval Requirements

A drawback with Discover is that you need to have a really good credit score in order to qualify. Although they don’t publicly disclose the minimum, it seems to be that you need at least a 710 to 720 FICO to get approved for their More card. Their Motiva card seems to be easier to get, but still requires good credit.

I remember when I got my first credit card. I was 18 and still a senior in high school. Rather than shopping around for the best credit card offer, I simply filled out an application at the same bank my checking and savings accounts were located, KeyBank (sidenote: I stopped banking with them long ago).

To call my first card “basic” would be an understatement. This thing had no rewards and a measly credit limit of $500, which wasn’t even enough to cover my monthly purchases. I always paid my statement balance in full so I never incurred interest or had any debt on it – but still – it was a bad choice (I will explain why in a moment).

Knowing what I know now, if I were to apply for my first credit card all over again, I would definitely do it different. If you’re currently in that boat, here are 10 tips I have for you.

#1. Unsecured vs. secured… what’s best for your spending habits?

I was always a saver, so for my personally, there was never a temptation to use my card recklessly. But what if you’re not like that? What if you can see yourself getting into debt?

Be honest with yourself. If you think there’s even a remote possibility you will spend too much, then you should definitely avoid getting an unsecured credit card. At least for the first year or two.

Instead, my advice would be to apply for a good secured credit card. With these, you will not be able to spend more than your security deposit, making them a perfect approach for testing the waters.

#2. Your local bank might not be the best idea

As mentioned, I made the mistake of just applying at my regular bank, rather than seeing what else was out there.

Tip: Many small/regional banks actually have their credit cards managed by someone else. For example, my first credit card from KeyBank was actually managed/issued by Citibank (though it was still branded as KeyBank). So there was no advantage in me applying through KeyBank, because they were not the one managing my card account or making the credit decisions.

Instead – for my needs – I would have been better off applying for a card from Citi directly. Why? Because then I could have gotten a nice starter card with great rewards and benefits (something that wasn’t available thru KeyBank). The Forward card from Citi would be a current example of a better option.

Not every small/regional bank outsources their credit card business, but many do. So investigate that before you apply for their card. Your local bank considers you a captive audience and for that reason, they might not be inclined to be competitive with what they offer.

#3. Beware of your credit utilization

When you get your first credit card, you probably won’t even know what this is. I didn’t.

Credit utilization is factor used in credit scoring. It measures the percentage of your credit limit which is being used. The higher the percentage, the worse your score will be. And it doesn’t matter if you pay your bill in full every month, because your statement balance (before payment) will still be reported.

So know how credit utilization, also known as your debt to credit ratio, will affect you.

#4. Understand how the grace period really works

With most credit cards, there is a grace period – if you pay the full amount of your bill on-time, you will not be charged any interest.

However these grace periods are often misunderstood. Why? Because they only apply if you pay your bill in full. If you don’t, then interest will be charged retroactively going back all the way to the date the purchases were made.

In other words, there is no grace period if you don’t pay the full amount due. For a more detailed explanation read this article about how credit card grace periods work.

#5. Compound interest can be brutal

Remember back in math class when the teacher showed you how compound interest can makes it possible to (a) grow your money in a bank account, or (b) go broke by paying debt. If you need a reminder, play around with this credit card repayment calculator.

My advice? Always pay your credit card bill in full!

#6. Zero interest promos are not your friend

I don’t remember if my first credit card had this, but often times when you apply for a new account it will give a 0% interest rate for a limited time – i.e. the first 6 or 12 months the account is open.

For the credit card veterans out there, these 0% deals can used strategically to their advantage. But guess what… you’re not a credit card veteran yet!

If you’re brand new to credit cards, these can turn into a trap… you may use them with the intention of paying off the debt before the promotion ends, but you know life goes… unexpected expenses always pop up, which may make it impossible to pay off on time!

One of the most important tips I can tell someone who’s starting out is this: don’t use 0% promos as an excuse to carry a balance.

#7. Don’t spend more to earn rewards

In the grand scheme of things, credit card rewards are trivial – typically they’re worth no more than 1% to 5% of how much you spend.

If you earn that on purchases you were going to make anyway, then that’s free icing on the cake. But don’t be delusional and tell yourself that it makes sense to buy a $3.29 Red Bull at the Shell station, just because your card gives 5% cash back at gas stations. Hmm… so you save 16 cents there, but you can buy it for over a dollar less at Target. Which makes more sense?

Buy things wherever they are cheapest, period. Don’t let your rewards program dictate where or how you spend your money.

#8. Have realistic expectations

Let me put this to you in plain English…. Your credit sucks. This will be your very first credit card, so my advice is to have realistic expectations of what you will qualify for.

• College Students – If you fit in this category, definitely apply for a college student credit card. They are easier to qualify for if you have little to no credit history (which will be the case for you).
• Everyone Else – There are cards for fair credit, which you will have the best chance at qualifying for. However most of those are very lackluster. If it was me, I would try and go for the Citi Forward because it’s perhaps the best card on the market that is geared towards people newer to credit.

#9. Credit Card insurance isn’t worth it

When you receive your brand new shiny card in the mail, there will be a phone number to call for activation. When you do this, 9 times out of 10 the rep will try and get you signup for a payment insurance plan.

Payment protection insurance on credit cards makes a lot of sense for the bank, but little sense for the consumer.

#10. Don’t cancel your first credit cards (usually)

This was a mistake I made! My first credit credit had a limit of only $500, which often times wasn’t even enough to cover my monthly spending. As a result, I would have to make 2-3 payments per month, since my available credit wasn’t sufficient.

Despite this going on for 2 years, they refused to increase my limit beyond $900 (still not enough to cover my monthly purchases). That pissed me off so much, I cancelled my card out of rage.

That was a mistake. Your credit score takes into account the average age of accounts – the older, the better.

So here’s a good tip: Even if you hate your first credit card, it’s best to keep it open for that reason alone. The exception to this rule would be if your card charges an annual fee. If that’s the case, then the cost of the card probably outweighs the benefit of keeping it open long term.

Q: I’m an adult but have never had a need to use credit. I paid for my car in full and use cash, checks and debit to pay for everything. Someday I would like to buy a place and know I need to build up my credit score to do that. What are the best unsecured credit cards for people with no credit history such as myself?

A: There are many Americans out there in the exact same situation as you. I would first like to say that you’re actually not in a bad position – having no credit history is like having a blank slate. That is far better than having a blemished record! Because you have an untarnished credit history, it usually is much faster to build up than someone that is trying to repair their credit.

So that brings us to the question, what is the best credit card for people with no credit history? Well, unfortunately your choices will be limited starting out. Here’s what you should expect:

Low starting credit limit: Since you are just starting out, naturally it shouldn’t be surprising that your credit limit will be on the low side – perhaps something around $500 to $700 to start out with if you’re approved for an unsecured card. However if you go with a secured card (that means putting up a security deposit) you can likely get a limit that’s higher – usually a credit line that matches the amount of your security deposit.

Possible annual fee: If you’re getting a secured credit card, some financial institutions may charge you an annual fee. However after you’ve had the card for 9 to 12 months and used it responsibly, then you will have a little bit of a history established and you can try to apply for an unsecured card with no annual fee from a different issuer. So although you might be paying an annual fee, you don’t have to stick with that card forever.

Here’s a couple different ways you can get started:

Getting a card through your bank or credit union
Do you have a longstanding relationship with a bank or credit union? For example, is there a bank that you’ve had a checking and/or savings account with for a while now? If so, this can be a great place to get your first credit card. It’s best to do this in person – walk in and meet with a banker there. Explain your situation and that you have no credit history and want your first credit card.

When going this route, many times your chances for approval of a card (albeit a basic one) will be better, because you have a relationship with that bank. Another benefit is that local banks are likely to charge an exorbitant fee on their secured cards.

Getting a card online geared towards those with no credit history
There are a number of financial institutions that specialize in credit cards for people with no credit history and those that need to repair their credit history. The best companies charge reasonable fees for these types of cards.

However be warned… there are many companies out there that will charge you way too much. One such example is First Premier Bank, who is famous for charging a laundry list of fees (application fees, processing fees, monthly fees, etc). When combined, those might equal up to $100 or higher just during your first year. To add insult to injury, the credit limits they give can be as low as $300.

Which banks are trustworthy for a good deal?
My current favorite is definitely Capital One® which I proudly advertise:

Remember your very first credit card? Even with zero credit history, an individual can still get approved for a student or secured credit card.

But is there anything similar for new businesses? A basic no-frills card that will approve a company with limited to no credit history?

The answer is both yes and no, let me explain…

Retailer cards?

When I opened my LLC, I figured the easiest business credit card to get would be one from a retailer, such as Staples or Office Depot. Wow… was I in for a big surprise!

You would think that these types of cards would have very loose credit requirements. After all, it’s not like some office supply store is anything special, right? Well apparently they feel otherwise. Upon reviewing the application, here’s what I discovered…

That’s right, just to get approved for a measly office supplies store card, your corporation/LLC needs to be raking in $5 million in annual revenue AND have been around for 3 years. Obviously, this is not a business credit card for a new business to get!

Of course you can still apply for a retailer card like that if you’re willing to co-sign with personal liability (so it’s not just under your business credit). But the question is… if you’re going to do that, why would you apply for such a low-level card? Wouldn’t it make more sense to apply for the Chase Ink or other major business credit card with rewards, benefits, and universal acceptance?

Conclusion? If you think store cards will be a good credit card for your new business, think again.

Major business cards?

As you know most of the big banks offer credit cards for businesses: Chase, American Express, Citi, Capital One, Discover, Bank of America, and others. So how many of those offer cards without a personal guarantee requirement? The answer is zero.

Whether it’s a major bank (such as the above examples) or a small regional bank, they all have one thing in common – in order for you to apply and get approved using only your company’s credit, you can’t be a new business. The qualifications are comparable (and sometimes even stricter) then the aforementioned Staples card.

Out of the major issuers, American Express seems to have the lowest bar to jump over. Back during the Great Recession they imposed a minimum of $5 million in annual sales to be approved (which is comparable to other banks). However after the economy improved, in 2012 they significantly lowered the requirements:

AmEx Green Corporate ($55 annual fee)

Have $10,000 per month in revenue and 6 months operating history.

AmEx Gold Corporate ($100 annual fee)

Have $2 million in annual revenue and 6 months history history

AmEx Platinum Corporate ($395 annual fee)

Have $2 million in annual revenue and 6 months history

Note: By definition, corporate cards are the only ones which do not require a personal guarantee. Regardless of the bank, anything called a “business credit card” or “small business credit card” will require you to co-sign using your Social Security number. If you don’t want personal liability, then what you want is a corporate card.

With all of the above (and any corporate card out there) you will have to prove your qualifications. When I called AmEx’s customer support and asked, they said that during the application you will have to provide your company’s bank account info – they will then call and verify deposit amounts and other information.

As you can see, the Green Corporate is one of the best business credit cards for new business, but not a brand spanking new one. Your LLC/corporation needs to have been around for at least 6 months and pulling in a minimum of $10k per month in sales.

On the other hand, the requirements for the Gold and Platinum Corporate are the same… $2 million in annual sales. If you’re just starting a new business, these probably won’t be options for you until down the road. All the other banks have similar minimums ($2-5 million annually) which makes the Green’s qualifications substantially below average.

Brand new businesses?

Obviously the American Express Corporate Cards are the best to aspire to… but none of them are for new businesses. So what should you do meanwhile?

If you’re comfortable doing so, your best bet will be to get a jumpstart on the credit building process by signing up for a biz card using a personal guarantee. Why? Because that way you can get one, even if your company is only a day old and has zero revenue.

Then once your company has an established operating and revenue history, you can apply for a corporate card (and cancel your business card if you want). The nice thing about doing it this way is that you will have already started to build a credit history for your corporation or LLC, even before you get the corporate card.

So which is best to start with? My vote is for the Ink by Chase and it’s what I use myself. I also have AmEx business cards but the caveat with those is that they don’t report to Dunn and Bradstreet or Equifax Business credit bureau (so while AmEx small biz cards are great for benefits, they’re not useful for credit building).

Compare my favorite business credit cards here