Prepaid Credit Cards to Build Credit
Prepaid Credit Cards to Build Credit
Many people believe that the use of prepaid credit cards to build credit works, but that’s not always true. Just buying and loading a prepaid card will not help a credit record, nor will obtaining any credit card and failing to utilize it do so. This is because in order for a credit history to be established and reported, there must be the action of borrowing and repaying a loan. Many times a prepaid credit card is actually a re-loadable debit card that allows the cardholder to make electronic purchases without needing to maintain a bank account. Since no credit is being granted or repaid, there is nothing to report to any credit bureau.
The only time using prepaid credit cards to build credit actually helps improve one’s credit score is when the cardholder is enrolled in a program specifically designed for credit reporting based on the card. In those situations, the lender actually extends a small amount of credit, to be repaid over a specified time frame, usually automatically withdrawn from the amount on the card. This allows the company to report to the 3 major credit bureaus that the cardholder has in fact shown the ability to borrow and repay a loan, thereby improving or establishing a credit history for the cardholder.
Sometimes people think that they are using prepaid credit cards to build credit, but what is really happening is that they have obtained a secured credit card account. They call it prepaid because they had to put money up front to get it, but that money is being held in a savings account. This protects the lender, because if the cardholder fails to make the payments, the lender has the entire amount available to pay off the loan. In the case of a prepaid credit card, most often
that money is being spent at each point of purchase, and so the card must be reloaded when the money is gone.
Prepaid Credit Cards: Using Prepaid Credit Cards to Build Credit
There are many people who could benefit from the use of prepaid credit cards to build credit because that is a fast and easy way to establish a record with the credit reporting agencies. Whether the card is a prepaid debit card using one of the major credit card companies, or a secured card with an account being held in a bank, it is the borrowing and repayment history being reported that matters. It is important that the cardholder understands which kind of prepaid card is being offered, and whether any reporting will be done from card activity.
Everyone needs a credit history in order to purchase a home or car, and the judicious use of prepaid credit cards to build credit is fast and simple. Opening an account is very easy, too. Just fill out an easy application and send in the money, or load the card with cash at an authorized location. Prepaid cards are usually loaded at a store or bank, while secured credit cards are issued by mail. Both allow you all the conveniences of having a credit card without going deeply into debt.