Does a Prepaid Credit Card Build Credit?
Prepaid credit cards have become increasingly popular in recent years, as consumer seeking to build their credit scores strive to find solutions more accessible and consumer friendly than traditional options. But does a prepaid credit card really help build credit?
Understanding Prepaid Credit Cards
Unlike traditional credit cards, prepaid credit cards do not require any form of credit checking and are not linked to a line of credit. Instead, users are required to load money onto their prepaid cards and are then able to use them just like they would a normal credit card, though spending is limited to the amount already stored on the card.
Do Prepaid Credit Cards Help Build Credit?
Using a prepaid credit card can help users build credit, however it does have some pitfalls. Unlike traditional credit cards, prepaid credit cards do not report to credit bureaus and as such, using a prepaid credit card will not improve a user’s credit score in the same way that using a regular credit card would.
How to Use a Prepaid Credit Card to Build Credit
There are certain strategies users can implement in order to leverage a prepaid credit card to build their credit:
- Set Up Automatic Payments: Setting up automatic payments ensures that payments are made on time, which increases the chances of the creditor reporting the payment history to credit bureaus.
- Pay More than the Minimum Balance: Making minimum payments is not enough to get the most out of a prepaid card. To ensure that credit bureaus receive the best possible information about the customer, it is important to make payments that exceed the minimum amount.
- Keep the Account Active: Keeping the account active is essential when using a prepaid credit card to build credit, as inactivity can work against the user in terms of building their credit score.
It is possible to use a prepaid credit card to build credit, however it is essential to understand the limitations of this approach. Ultimately, using a regular credit card is likely to be the best option for those looking to build their credit, as long as they can stay on top of making payments.