Do Prepaid Cards Build Credit

Do prepaid debit cards build credit? This is a common question asked by many people with a poor credit rating and are having problems obtaining a credit card. The simple answer to the question is no.

Prepaid cards will not build your credit because they are simply not credit cards. To rebuild your credit you need to be able to borrow money and prove that you can pay it back. This is what builds a good credit history.

Prepaid Cards Are More Like Debit Cards

With a traditional prepaid card you deposit your own money to set up the spending limit balance . The amount of cash that you deposit onto the card becomes the amount you can spend. If you deposit $500 that is your spending limit until you deposit more. In this way it is more like a debit card than a credit card. As you are using your own money you do not have to pay any interest rate payments. With a credit card you are extended a loan amount that you pay over a monthly repayment schedule.

Most Don't But A Few Do

Although the vast majority of prepaid cards are not able to rebuild your credit a few issuers are providing prepaid cards with a credit facility that can be used to pay certain expenses such as your gas bill. These transactions are reported to a credit bureau. The credit bureau these prepaid cards report to is called the Payment Reporting Builds Credit agency. It is a positive move that these issuers do report your transactions. However, the only problem with these card offers is they do not report your transactions to the credit bureaus that matter.

The Credit Bureaus That Matter

The major credit bureaus are Experian, Trans Union and Equifax and they use the all important FICO score .These are the bureaus that you want your transactions reported to because the vast majority of the big lenders and banks use the FICO credit score to determine peoples credit worth. Therefore, when it comes to qualifying people for a loan it is the FICO score the banks will be looking at.

There is nothing wrong with the PRBC. Actually they are an official credit bureau that is completely compliant with the terms and conditions set out within the Fair Credit Reporting Act. However, they differ from the big three credit bureaus in the consumer data they collect. The PRBC agency compiles a credit report based on data relating to the payment utility bills. This is in contrast to the likes of Experian or Trans Union who focus on consumers credit accounts, repayment of debt and payment history.

There will be a few creditors that will request access to PRBC credit files however, when it comes to qualifying consumers for credit cards, personal loans and mortgages most lenders will rely on the credit reports produced by the three major bureaus.

Why Use Prepaid Credit Cards

Although the original answer to the question do prepaid cards build credit is negative they do come in handy for people who need a convenient and cost effective way to use a card. They have a wide network which enables people to use them in places that accept all major credit cards such as Visa, Mastercard etc.

They also have lower charges compared to traditional credit cards. Low cost prepaid cards are a good option if you do not wish to pay any high processing or set up fees that you normally have to pay with the major issuers.

What Are The Alternatives

If you are unable to obtain a credit card because you have a bad credit score then you wish to consider applying for a secured credit card. This type of card is half way between a prepaid debt card and an ordinary credit card. With a secured card you use your own money to create a spending limit just like you would with a prepaid card.

However, when you makes purchases on the card they are not automatically deducted. Like a credit card you can pay these at a later date. Where it differs is that your deposit is used as collateral or security. If you fail to make future payment your deposit will be used to cover the card issuers loss. Also, secured credit card issuers are more likely to report your transactions to the major credit bureaus.

I hope you found this do prepaid cards build credit article helpful. If you need to find out further information about increasing your credit score then check out the following links below.]

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