What Is the Effect of Using Prepaid Credit Cards on Your Credit Rating

The question is whether you can improve your credit score by using a prepaid credit card. We are sorry to inform you that at this time a prepaid card does nothing to improve your credit history simply because they are not reported to the credit bureaus.

Prepaid cards come into a category that is commonly referred to as alternative credit which includes other billing processes such as utility bills, housing rent, cellular phone bills etc. All these transactions work a lot like credit but invariably different. In many of the services that payment is actually made before the services provided. In other cases the services constitute essential living requirements of an individual. This means that an individual will not treat the payment of these essential services as he would treat an additional nine of unsecured credit. If an individual makes regular payments on utility and telephone bills does not mean that he will be as meticulous while making payments on a credit card simply because while he can get away with not being a credit card bill he will not be able to survive in comfort without paying his utility or mobile phone bills.

Owing to the similarities between traditional credit and alternative credit the credit bureaus are under the process of investigating and evaluating along with the help of the lenders how the payment history of a consumer on alternative credit bills represents his credit worthiness for conventional credit. At this time there is not enough information to make a fair judgment. Apart from this there are other factors that stock from utility bills being reported to credit bureaus such as certain state laws. In order to report data to a credit bureau business or individual must meet certain technical and infrastructural standards which involve additional cost in terms of technology, equipment and workforce. This is also a hindrance when it comes to reporting alternative credit data to the credit bureau.

The usage of prepaid credit cards is being looked at carefully by the credit bureaus because it is an important tool for people who are trying to establish a credit history for the first time especially young people and minorities.

Till the time that it takes to verify and determine how the uses of a prepaid credit card represents the creditworthiness of the people, the prepaid credit cards will not be reported to the credit bureaus and they will do nothing to affect your credit report or credit score in any way.