Prepaid Credit Cards Do Not Help in Rebuilding Credit History

Prepaid credit cards are not reported to the credit bureaus. Usage of a prepaid credit card does not fall under the category of credit at all. In fact the way a prepaid credit card works is more like a savings account. You are first required to deposit the money on the account and you are allowed to utilize only the amount that you have deposited. Once this amount is exhausted you had to replenish it with further deposits. This is primary reason why prepaid credit card providers to not report the transactions to the credit bureau as they are not an indicator of the creditworthiness of an individual. It is the same reason why savings accounts and checking accounts are not reported to the credit bureaus.

If you wish to use a credit card in order to build a credit history and cannot qualify for a regular credit card then secured credit card is likely to be a better option for you. Even though you are required to make a deposit for a secured credit card as well, this deposit is only used as a security and for bill payment purpose in the event that you default on your credit card payment. Apart from making the security deposit a secured credit card works pretty much like a regular credit card. You can make charges on the credit card as per the credit limit and pay the bill every month. The usage of a secured credit card will get reported to the credit bureaus and to your credit history in most of the cases.

Why Prepaid Credit Cards Can Cost More

What are the disadvantages of a prepaid credit card?

While a prepaid credit card may seem like a good idea in many situations especially for people who cannot qualify for a regular credit card due to an unsatisfactory credit history, a prepaid credit card may be an expensive proposition. The main disadvantage of a prepaid credit card comes with the additional fees that are associated with it. Usually when you apply for a regular credit card with your own bank you are not charged any additional processing fee. But in the case of a prepaid credit card there is usually a processing and activation fee. Apart from this there are fixed standing charges which are levied on a monthly basis as well as for certain kind of transactions. Your prepaid credit card may have a monthly transaction fee of as high as almost $10, one dollar for making PIN purchases, one dollar fee to check your balance at an ATM, two dollar fee to talk to a customer service representative and the two dollar fee to withdraw money from an ATM.

All these fees are deducted from the balance on your credit card. So you may find that you have lesser money to spend and what you had originally loaded on your prepaid credit card which may come as an unpleasant surprise if you are not aware of it beforehand.

Another obvious disadvantage of prepaid credit card is that it is not reported to the credit bureaus. A prepaid credit card is more like a checking or a savings account rather than a typical credit transaction. Since you are required to deposit the money before you can spend it, it is not typically a credit transaction. This is mainly white prepaid credit providers do not report the transactions to the credit bureau. Not having the usage of prepaid credit card reported to the credit bureau means that using one will not affect your credit history and will do nothing to enhance your credit score.

Another possible disadvantage of prepaid credit card may be that there may be a threshold as to the amount of deposit that you are initially required to make in order to activate the card. Some people may find it difficult to come up with this deposit. However, this is not such a bad thing as it can be an indicator for a lot of people that they are trying to make expenses they cannot afford. The reason why most of the people get into trouble with credit is by spending beyond their income. If you feel that you cannot afford a prepaid credit card then you should consider the fact that maybe you should not be thinking of spending so much at the moment and saving.

If you are considering a prepaid credit card then you must also look into secured credit card first as that may be a better and a cheaper option for you.

Using a Prepaid Credit Card As an Alternative to Conventional Postpaid Credit Cards

Prepaid credit card can be an alternative to conventional post paid credit cards.

There are several credit card providers that deal in prepaid credit cards today. Even well-known credit card giants like Visa, MasterCard and American Express have prepaid credit cards to offer. Prepaid credit card works much like a prepaid mobile phone card. Before you can use it you have to load money on to it. Once loaded you can use a credit card for the amount that the credit card has been charged with and when exhausted you can recharge it went desired amount of cash once again.

The need for a prepaid credit card arises in various situations. It is a fact that transactions in certain circumstances and situations are not possible without a credit card. Examples of such transactions are car rentals, online booking of hotels and airline tickets, online shopping etc. They may be reasons why a person cannot get regular credit cards such as the lack of a credit history. For such a person a prepaid credit card may be the only option. Although a prepaid credit card does not help in enhancing the credit history of a person it does afford the conveniences of a regular credit card. Another situation where people prefer a prepaid credit card is when they are travelling long distances or going abroad. They prefer this method of carrying cash and avoiding the risk of getting their regular credit card stolen.

You can load a prepaid credit card with the desired amount of cash and then use it to the time that the amount is exhausted. For example, if you load your prepaid credit card with $500 you can continue to use the card till you have exhausted this amount. Every time you make a purchase that amount of money is deducted from the balance on your card. So if you shop for $150 on a card that has been loaded with $500 you will have a balance of $350 remaining. Managing a prepaid credit card is pretty much like spending from a savings account rather than a regular credit card. The money that you spend has already been deposited by you in an account and is not money on credit in the strict meaning of the term. You do not have to worry about interest, finance charges or late payments.

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.

A Prepaid Credit Cards Does Not Build Credit History

Prepaid credit cards don’t help in building your credit history for the simple reason that they are not reported to the credit bureaus.  Prepaid credit cards are secure line of credit and are more like debit cards because the money that is available to you on a prepaid credit card has already been paid to the bank.  A prepaid credit cards comes under the category what is commonly known as alternative credit.  Alternative credit is a form of credit that resembles traditional credit in many ways but is different.

The common examples are payments for utility bills, mobile phone contracts and even payment for housing rental.  In all these cases an individual makes payment for services provided but there are certain elements may seem that do not permit them to be viewed by the national credit bureaus as actual and pure credit accounts.  For one thing many of these payments are made for essential services and for another that reporting of utility payments is not permitted by the law in many states the credit bureaus are considering including such transactions in a credit rating a person since the payment pattern so closely resembles that of credit.

But before that happens any reporting business would have to meet the requirements of the Fair Credit Reporting Act and the Fair and Accurate Credit Transactions.  In order to do so it will require purchase of new equipment, implementation in technologies and perhaps hiring new staff all of which involves a significant cost to the businesses.  Till the time that happens prepaid credit cards and other forms of payments that come under the category of alternative credit do not get reported to the credit agencies and in no way serve to building a positive credit history.

The upside for having a prepaid credit card is that it is easier to get than a traditional credit card specially in case of a person who does not have a good credit history or does not have a credit history that all.  Prepaid credit card can help you get a foot inside and the process required for building a good credit history.  After displaying responsible uses and management of your prepaid credit card your credit may be willing to extend you a traditional credit card after which you can start building your credit history.

Prepaid Credit Cards Are Not Reported to National Credit Bureaus

Prepaid prepaid credit cards not traditional credit.  Since the money available on a prepaid credit card has only already been paid to the creditor they are more like debit cards.  Credit cards come under another category of credit like transactions that is commonly referred to as alternative credit.

Alternative credit data includes a number of other things that resembles traditional credit in many ways such as utility bills, mobile phone bills and even housing rental contracts.  They are payments made regularly either monthly or yearly for services provided.  However there are certain differences which do not permit this data to be reported to the national credit bureaus as a mark of an individual’s creditworthiness.

In some cases the state laws prohibit reporting of utility payments.  In other cases the concern is that of the company not having the infrastructure and technical requirement to meet issues like technical reporting, updating and resolving disputes.

Another reason is that a lot of times such payments are made for services that are essential to one’s livelihood such as bills for electricity, water and gas.  Many of such payments are also made prior to receiving the services of the goods.  For this reason such payments may not be as accurate a representative of one’s credit worthiness as traditional credit accounts.  Replacing them per traditional credit accounts might result in inaccuracy while evaluating the risk of the individual.  The various credit agencies are working to resolve these issues but for the time being other amounts of payment services that come under the category of alternative credit which included prepaid credit cards are not reported to a credit bureau.