Do Prepaid Credit Cards Boost Credit Scores?

Prepaid credit cards are not really a new thing. They have actually been around for a long time. Using prepaid credit cards is becoming increasingly popular because of their many benefits. However, these cards have been hailed by some as a way of boosting credit scores. In fact, prepaid credit cards are different from regular credit cards because they do not affect your credit score in the same way a regular credit card does. This article will discuss prepaid credit cards and their effect on credit scores. If you are interested, keep reading.

What is a Prepaid Credit Card?

A prepaid credit card is a type of card that only allows you to spend money you already have. Put simply, a prepaid credit card is a replacement for cash. It looks like a debit card with one major difference; it does not link back to your bank account.

You can buy a prepaid credit card just about anywhere, from supermarkets to online, and load it with cash, then use it to make purchases or conduct other transactions. You can only spend the money you have loaded on your card. Borrowing money, the way a regular credit card works, is not possible with a prepaid credit card. These cards do not give you a line of credit to be used for purchasing goods and services.

What is the Difference Between a Prepaid Credit Card and a Regular Credit Card?

Prepaid credit cards have limitations compared to regular credit cards. When using a regular credit card, you are borrowing money to pay for goods and services. On the other hand, when you use a prepaid credit card to make purchases you must have enough money on your card to cover the amount you are spending.

Your payment history and account balances made through your regular credit card will be reported to the credit bureaus. The information in this report determines your credit score. A prepaid credit card account is not reported to the credit bureaus and does not affect your credit score because you are not borrowing the money to make the purchase. Therefore, prepaid credit cards do not affect your credit score negatively or positively.  

Why Choose a Prepaid Credit Card?

Oftentimes, you cannot get a regular credit card with a low credit score.  It can also be difficult to obtain a regular credit card without a substantial source of income or as a young adult with little credit history. 

If you have bad credit or no credit, you might have difficulty getting approved for a regular credit card. That is where prepaid credit cards come in handy. Prepaid credit cards are accepted almost everywhere regular credit cards are, even ATMs.  This makes them a great option for anyone wanting the convenience of a credit card without the usual credit check.

A prepaid credit card helps you budget your money since you cannot spend more than what you have on the card. Also, getting a prepaid credit card does not require a bank account or credit history; you can simply buy one from the supermarket. Furthermore, prepaid credit cards are a good option for people who prefer not to carry cash or who want to make purchases online.

Alternatives to Help Build Credit

Whether you are a college student or just starting out on your own, you may find there are certain things you need to do to establish yourself and build your credit. Since you cannot build credit by using a prepaid credit card, here are some alternatives: 

•         Get a credit builder card. This card is designed for people with poor or no credit history. You can load your credit builder card with cash and spend the exact amount you have loaded. It functions similar to a typical prepaid credit card but there is one difference; the card issuer charges you a monthly fee, and by paying this fee each month on time, you can build credit.
•         Get a secured credit card. This type of credit card requires you to make a cash deposit in order to open the account. The card issuer holds the deposit as collateral in case you do not make your payments on time. People with a poor credit history can get this card and can slowly start to build credit.  
•         Another option is to become an authorized user on one of your family member’s regular credit cards; make sure they have a good credit history before doing this. This way, you can use their credit card account for purchases and take advantage of their good credit history. This history will appear on your credit report and will help to increase your credit score.

Build Credit Quickly

Now that you know what a prepaid credit card is, you can better decide whether you need one or not. Prepaid credit cards benefit you in different ways, but they will not become part of your credit report or affect your credit score. If you are looking to build credit, you should consider other alternatives, such as getting a credit builder or secured credit card. However, if you need a faster way to build or repair your credit, the best option is to ask for help from credit repair specialists. Sign up here for more information about building your credit quickly!