Do Prepaid Cards Build Credit?
By Ben Luthi
Building credit can take time, but using the right card can help speed up the process. Prepaid debit cards are appealing if you have bad credit because they don’t require a credit check. But they won’t help you achieve your goal of having a great credit score.
Can a prepaid card help build credit?
The short answer is no. Prepaid cards can’t help improve your credit
because they don’t have a credit line attached to them like a credit card. You can use the money you load onto the card — typically from your bank account, through direct deposit, or with cash — but you don’t borrow any from the card issuer in the process.
Since there’s no credit relationship, there’s nothing to report to the credit bureaus, which produce your credit reports.
That said, prepaid cards can be helpful with your money management. For example, you can load a set amount of money onto your card each week to help you budget. Also, some cards allow you to add sub-accounts for a spouse or kids.
Most prepaid cards have monthly fees, and some even charge you for loading cash onto the card at local retailers. If you’re considering a prepaid card, do your diligence to find one that suits your needs without high costs.
What are some good alternatives to a prepaid card?
If your ultimate goal is to improve your credit score, there are a few options to consider, including:
Secured credit cards
: These credit cards require a security deposit, which is typically equal to your desired credit limit. Beyond that, they function the same as regular credit cards. You can find secured credit cards
a variety of secured cards, and now the Self Visa® Credit Card
lets you use your Credit Builder Account savings progress toward your security deposit.
Also, some secured credit cards offer extra perks. The Secured Mastercard® from Capital One®, for instance, allows you to get an initial credit limit with a deposit of $49, $99, or $200, depending on your creditworthiness.
Store credit cards
: If you have a favorite retail store, chances are that it offers a store credit card
. This type of credit card is unsecured, which means you don’t need to put up a security deposit. Also, you can typically get approved with even bad credit.
That said, store credit cards often charge high interest rates, and some you can only use at that retailer.
Credit builder loans
: If you don’t need or want the buying power of a credit card, a credit-builder loan
can also help you improve your credit history. When you take out the loan, the lender will typically hold the loan funds in a savings or certificate of deposit account as you make your monthly payments.
Then when you complete your repayment, you’ll get the loan amount plus any interest it earned in the deposit account.
Become an authorized user
: If a trusted family member or friend has great credit, consider asking if you can piggyback on their credit card
. As an authorized user, you can get the benefits of having credit
because of their responsible use of the card, but you won’t be legally liable to pay the balance.
The bottom line
Prepaid cards can be a great choice if you want help with budgeting your money or managing your family’s finances. But if you want to build credit, look to other options that can provide you with the help you need.
About the author
Ben Luthi is a personal finance writer who was previously a staff writer for NerdWallet and Student Loan Hero. He has a degree in finance. See Ben's profile on LinkedIn