Prepaid cards work very similar to debit cards, except that they are not linked to a bank checking account. You do not have to have a checking account or even be able to qualify for one to use a prepaid card. Prepaid cards work by the user adding money to the card account and then can use the card anywhere that accepts Visa or MasterCard. Often these cards are referred to as prepaid credit cards or prepaid debit cards, they are really just prepaid cards. Sometimes the term credit card throws people off, but these cards are not credit cards. You can only spend the money you have already added to the card, therefore a prepaid cards is not like a credit card. As a result, prepaid cards generally do not help you build your credit. There are some prepaid cards that have an added feature to the account that will help the cardholder build a positive credit file. There are a handful of these cards that have this added feature.
The AccountNow cards have a credit building feature that enables cardholders to build a credit history. The service they offer is called Credit Builder, and there is no cost for cardholders to partcipate. By activating AccountNow’s bill pay feature, you can pay monthly bills like your rent and utilities, online. AccountNow reports your payments to PRBC, a national credit reporting agency. PRBC is not one of the three major credit reporting agencies, but according to AccountNow, home loan associations like Freddie Mac and Fannie Mae and Citicorp Mortgage use bill payment information as part of their decision making process for home loans. By paying your bills you are creating a positive credit file with this credit reporting agency.
Building Credit with Prepaid Cards
You can build your credit with a prepaid card, but there are a few things to keep in mind. First, the credit agency the prepaid card reports to is important. For example, the AccountNow cards use PRBC, so this is only useful if the lender you are going through uses PRBC to make decisions on whether to make a loan to you or not. If you have established a positive credit history with PRBC, but nobody uses that agency then it’s useless. Another thing to keep in mind is that it only works if you pay your bills with your prepaid card. The only information the prepaid card company passes along is if you pay your bills. If you don’t use your prepaid card to pay your bills, then you can’t establish a positive file. If you are someone who doesn’t have many options when it comes to building your credit, then a prepaid card might just be the best way to go. They are a great way to manage your money, especially for people who don’t have other options and can’t get a traditional bank account.