How Do Prepaid Credit Cards Affect Your Credit Score?

More and more people are turning to prepaid credit cards as a way to pay their bills online, make purchases and do away with the need for carrying cash around. As people continue to fall deeper into debt, prepaid credit cards provide a way for them to still use credit but in a much more responsible way. But do prepaid credit cards affect your credit score?

According to some analysts, prepaid credit cards are great for your credit score. They are designed to work as “credit builders,” meaning those who have bad credit or mediocre credit can improve their score by using these as money. More than a third of your credit score is determined by your payment history and the prepaid credit card companies report your payment each month, even though it is not an actual payment like a traditional credit card. Traditional credit card payments are typically only reported yearly, so the prepaid credit payments show up quicker on your report as well.

In addition to that, most prepaid credit cards charge a fee for using their service. This is typically a nominal fee (usually about $4.95, sometimes more), but the fees are often deducted from the balance you have on your prepaid credit card. This gets reported to the credit bureaus as well and shows up as another payment which makes your credit history look even better to lenders.

Since prepaid credit cards do not require a credit check in order to obtain one, this is also good for your credit history. Many times, inquiries on your credit can ding your score and bring it down a couple notches. But this doesn’t happen with prepaid cards because there is no credit check.

If you already use a checking account, a prepaid credit card may be ideal for you. Since they build your credit and checking accounts do not, why not switch your finances over to a prepaid credit card? This will help build your credit for the same thing you are doing anyways. Besides, prepaid credit cards are easier to use for making purchases and paying bills than writing a check.

As you can see, using a prepaid credit card has a number of advantages for your credit score. There are many available so find one that suits your needs and start rebuilding your credit today!