One of the most common questions being asked today is: do pre paid credit cards build credit? The simple answer is yes it does help individuals pull up their credit rating. However, there are usually underlying factors to consider in situations like this, making it crucial for individuals to be fully aware of their credit situation.

What are prepaid credit cards?

Prepaid credit cards are also known as secured credit cards. Their credit limit depends on the security deposit an individual has on the bank. This serves as a security measure for the credit card provider, ensuring them that the holder is capable of payment. The credit card still functions as the regular type with monthly interest rates and minimum payments required to be paid on time.

Prepaid Credit Cards and FICO

Typically, prepaid credit card history will not be affecting a person’s FICO score. However, there are special types of credit cards specially made to help build credit rating. These providers submit a client’s history to the credit bureaus, therefore making them count when computing the score. With routine payments made that are within the deadline, credit card holders can slowly but assuredly build their score.

However, improving credit rating is not the only reason why individuals would find prepaid credit cards desirable. They offer excellent opportunities for money management without the risk of not being able to pay at the end of the month. Some banks may even automatically deduct the amount from your security deposit, therefore ensuring that the bill is still paid on time.

The Cons of Prepaid Credit Cards

Do pre paid credit cards build credit? Yes but some drawbacks are also evident after careful study. For example, the interest rate may be quite high on the credit card itself, making it hard to reach the required payment. Consequently, the secured deposit may not earn much since it is tied as collateral to the credit card. In most cases, the secured deposit is not something that the account holder can access easily.

Finding Prepaid Credit Cards

When looking for prepaid cards for the purpose of building credit, it’s always a good idea to ask first. Question the bank if they report the terms of the credit to credit bureaus, therefore making it helpful for an improved credit score. Also take into account the different factors when getting a credit card such as interest rate, minimum payment required and terms and conditions of the account. More importantly, individuals should know the treatment for their secured deposit and whether accessing it will be restricted.

To wrap it up; do pre paid credit cards build credit? Yes but individuals need to know what they’re getting into. Otherwise, they might find the account being more of a problem than a solution. Keep in mind that proper money management factors a lot in the situation and should be the main concern when owning a credit card. Browsing around different providers and comparing rates and terms would be the best approach in order to find something desirable.