Does a prepaid credit card build credit?
No, prepaid credit cards do not help you build credit. That ‘s because prepaid credit cards are not the same as recognition cards, and one of the downsides is that you are prepaying money to a poster to use — not borrowing from a lender. Prepaid cards are more like gift cards or debit cards than credit cards. You load money onto a card that you swipe or use on-line to make payments.
Because you are n’t borrowing funds, the prepay credit card information does not have any information to report, like your payment history or symmetry, to the credit agency. Without that information to report, the menu wo n’t affect your credit score positively or negatively .
How do prepaid credit cards work?
A prepay credit card is precisely what it sounds like : it ‘s a calling card you load money onto, typically from your bank account, via direct deposit, or with cash. When the money that you loaded onto the menu has been used, the poster will no longer work unless you reload it with more money. You can use these cards about anywhere you would use a accredit menu. Grocery stores, retail stores, websites, bill payments, and other platforms typically accept these types of cards, though it will depend on the type of postpaid credit poster you choose and the retailer ‘s policies.
These cards can be utilitarian for budgeting purposes or for people who do n’t have access to a bank report or debit card, but there are some potential downsides. For model, most prepay cards have monthly fees that come with the tease. Some will besides charge you for other things, like loading cash onto the wag. If you ‘re considering one of these cards, it ‘s crucial to do your research and make certain that the card does not come with a long ton of fees attached to it. And, if you ‘re looking for a recognition wag that builds credit, you may want to opt for a completely different type of menu alternatively — which may include one of the card types below.
Read more: Average Credit Card Debt in America: 2021
Credit-building alternatives to a prepaid card
The good news program is, though, that while prepay credit cards wo n’t help to build credit, there are other types of credit rating cards that will allow you to build your credit score — and you can typically qualify for them with a first gear or no credit seduce. These include :
Secured credit cards
Secured recognition cards are one of the better options for people trying to build credit rating. These cards work like regular credit cards, but the main difference is that you have to put down a security sediment, which is typically the equivalent of your credit specify. For exemplar, if you put down a $ 500 deposit on a secured credit card, you will typically have a $ 500 credit limit. There is a wide compass of options for secured credit cards, and many major calling card issuers will offer these to customers who do n’t qualify for a typical credit card. Some will require credit checks, others wo n’t, but these cards are meant to help you build accredit, so they do report to the recognition chest of drawers each month — barely like a regular credit card .