Whether you’re just starting out or trying to start over after credit damage, you may be considering a prepaid card or a secured credit card to help you along the way.
It’s very important that you understand that prepaid cards and secured credit cards are NOT the same thing. One is convenient for when you don’t have (or cannot qualify for) a checking account. The other is a way to start rebuilding your credit.
Prepaid debit cards DO NOT help you build your credit.
(If that’s all you need to know, you can stop reading here.)
If you want to know WHY… Keep reading.
Think of a prepaid card as a debit card or check card. You have to deposit money into the account in order to use it. When you make purchases, you subtract from the money you have deposited. When the money is gone, it’s gone. You have to deposit more money to be able to make more purchases.
You can use a prepaid card anywhere you could use a traditional credit or debit card: restaurants, grocery stores, gas stations, retail stores, hotels, car rentals, pretty much anything you need. Some give you a few paper checks to use each month or offer online bill pay services, too. Your employer may even be able to direct deposit your pay into your prepaid account.
Prepaid cards are also very handy for teenagers or college students who get an allowance from their parents.
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…But they are NOT credit cards.
Prepaid debit cards DO NOT report to the three major credit reporting agencies… Experian, TransUnion, and Equifax. They may report to other “consumer reporting agencies”, but not the three that count.
You’ll also often have to pay a fee to open the account, another fee every time you put money in the account, and a monthly access fee to be able to use the card. Overall, prepaid cards are very expensive to use.
But if you’re interested in building your credit for the first time, or rebuilding after credit trouble, your best bet is to find a secured credit card.
Secured credit cards also require a deposit, but that money is held in a separate account to cover any expenses in case you default (which we sincerely hope never happens). But (unlike prepaid debit cards) they work just like credit cards. The banks that offer secured credit cards charge you interest for unpaid balances, allow you to carry a balance from month to month, and, most important of all, they DO report to the three major credit reporting agencies.
Some secured credit cards charge application fees, but many do not. Some check your credit before allowing you to open the account, others do not. All charge interest for any balance you carry from month to month, but those rates can vary greatly from card to card.
Your best bet is to do a little research online and find a secured credit card that meets your needs.
If your credit is in very bad shape, you should try to find one that does not require a credit check to open. You may pay higher fees to begin with, but the whole goal is to start building your credit. This may be the best place for you to start.
Another great benefit of a secured credit card is that after 12 to 18 months of on time payments you may be given an offer to convert to a traditional credit card. You can get your security deposit back and continue to use the credit card responsibly.
As always, our strongest advice is to pay your credit card on time every month. Keep your balance as low as possible, ideally no more than one third of your total credit limit.
If you are having trouble finding a secured credit card that you can qualify for, you might want to consider NCES credit restoration services before you try again.
Call our office during regular east coast business hours or contact us online and will help you find a credit restoration consultant near you.
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If you have any questions, please give us a call at 770-952-5168 or contact us online.
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This information is intended for informational and educational purposes only and not as legal advice. If you have concerns about your credit report, harassment, identity theft, illegal collections activity, garnishments, or property liens, you should consult an attorney who specializes in consumer rights and defense.