Many prepaid debit card companies claim that their cards can be used to “build credit” and suggest that usage of these cards can help your credit score. The truth is that while prepaid debit cards can help build up a credit file, the credit file that is built is not necessarily one that will help you boost your personal credit score.
The personal credit score that is generally accepted as the one that matters is the score that is reported by the three major credit bureaus…Experian, TransUnion and Equifax, and is built from payment activity reported to those three bureaus. This is the score that matters to lenders or other credit providers of all types. It’s the score that is used by credit card companies, mobile phone companies, car loan companies, insurers, etc. When they pull your credit score, they are attempting to find out what your credit history is for one or all three of the major bureaus. It is also common that the score of all three is not identical.
For the most part, using a prepaid debit card does nothing to cause this personal credit score to be affected.
Some prepaid Visa cards allow bill payments to be reported to an “alternative” reporting agency or bureau. These alternative bureaus readily accept cash payment activity, and build a file of your payment history, based on whomever they receive the payment history from. Their business model is that they sell these reports to credit grantors who request them as a secondary source of information, rather than charge the companies that report them.
Unfortunately, when a credit grantor pulls a credit report, this “alternative” information is not typically contained in any credit report from the three major bureaus. As a result, any file or history that may have been reported to the alternative bureau does not impact the score that matters (the one reported by the three major credit bureaus).
But there is still one way that a prepaid card can be used to improve your personal credit score. Several prepaid credit card companies have added a short term loan feature to their cards. Timely repayment of these short term loans can impact your personal credit score. Plus, a prepaid card with a short term loan feature is a perfect bank account alternative, and in many ways is better than a credit card (giving you the benefits of a prepaid account with access to a small line of credit).
Author: Kurt
GetDebit.com
