In the past, prepaid credit cards or prepaid debit cards cannot be used as tools for rebuilding credit history. This is because issuers of prepaid cards do not report account activities to the credit bureaus. In order to build credit history and credit score, account activities must be reported to the three major credit reporting agencies – Equifax, Experian, TransUnion.
A popular tool which can be used to build credit history is a credit card. Credit card companies provide their cardholders with a credit line. By using a credit card and paying charges regularly, a person can build a solid credit standing more easily. Aside from acquiring revolving credit, people can also apply for loans such as car loan and mortgage, or an equity line of credit, to build credit history.
What about using a prepaid credit card? While a prepaid credit card can be used to pay bills and make purchases just like a regular credit card, a prepaid cardholder is not provided with a credit line. However, there are issuers of prepaid debit cards today that report to the major credit bureaus. These particular prepaid cards can be used to establish credit history or rebuild bad credit.
How can a prepaid debit card help you build credit even though the cardholder is not provided with a credit line? Some prepaid credit card issuers have made a special provision to monitor the prepaid cardholder’s account activities. There are basically two ways on which you can use a prepaid debit card to build credit or rebuild bad credit: by using it to pay bills online or by purchasing from merchants that report to the major credit bureaus.
For example, you can pay your monthly utility bills such as electricity, internet, cable or satellite subscription through your prepaid debit card. Look for prepaid credit card or debit card issuers that offer online banking services or features. Thus, as you pay your monthly bills on time, you can also prove your credit-worthiness and build-up your credit score.
Keep in mind that bills or purchases charged to a prepaid debit card is automatically paid with the available fund loaded in the card. There is no need for you to make repayment at a later time. Hence, using a prepaid debit card completely eliminates the risk of debt accumulation.
A prepaid cardholder does not need to worry about paying extra charges such as interest rate and late fees. However, make sure that the fees are reasonable since some prepaid debit cards are known to impose expensive maintenance costs. Check the set-up fee, overdraft fee, reloading fee, and the monthly fee to keep your account active.
About the Author:
Tara Tiemann is the credit specialist for Go-Prepaid. Which is a resource site for people who want to live debt free! If you are on a budget, using a prepaid credit cards and prepaid debit cards can save you big money!