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debit card

Fixing Bad Credit? Use a Prepaid Debit Card

Posted on May 24, 2018 by Shelly Evans

For people who need to repair low credit, you will find one sort of credit card which can be used as a tool for credit score improvement.

It’s not your regular credit card but it can be used as payment anywhere credit cards are accepted. What kind of plastic payment are we talking about?

Prepaid credit cards or debit cards are increasing in popularity in the marketplace today.

For those who cannot get approved for a regular credit card, a prepaid card is a good alternative. Prepaid debit cards do not demand credit check so anybody can easily have one regardless of credit history or credit score.

What makes prepaid cards different from other credit cards for bad credit?

Unlike a secured credit card, a prepaid card does not provide its holder with a credit line. Instead, prepaid debit cards are like electronic wallet where the owner puts in cash for future transactions. Once a prepaid card is used to pay a bill or purchase, the charge is immediately paid off using the fund in the debit account. When the fund runs out, the debit cardholder must make a new deposit or reload the account to be able to use the card for new transactions.

In the past, debit card issuers do not report to the credit bureaus so they cannot be used for credit repaid. Today however, debit cards or prepaid credit cards have evolved. You can now find issuers of prepaid credit cards that report to the three major credit bureaus. In fact, prepaid cards can now be used to establish credit history as well as in repairing bad credit.

Prepaid debit cards are ideal for credit repair because it gives the cardholder the chance to control spending. By using a prepaid card, you can deposit only a limited amount of cash in your debit account each month. Once you have used up your balance, you will not be able to charge new purchases to your account. If you’re having a hard time keeping track of your spending, a debit card will help you do just that.

What about the fees?

Prepaid debit cardholders don’t need to worry about interest rate charges. However, it’s important to choose a prepaid card with minimal fees. What kinds of fees can you expect? Typically, there is a set-up fee when you apply for a prepaid debit card. Some issuers also impose monthly and yearly fees to keep the account active.

Of course, prepaid debit cards that do not charge monthly maintenance fees are the best choice to save money. However, make sure that the annual fee is just as reasonable. You may also be charged with a fee for each transaction you make. To avoid unnecessary charges, plan your purchases ahead so you only have to pay once for a single transaction.

Indeed, prepaid debit cards can help you improve your bad credit score as your credit activities are reported to the bureaus. Keep in mind that debit cards are only tools but your success will still depend on how well you manage your personal finances.

4 thoughts on “Fixing Bad Credit? Use a Prepaid Debit Card”

  1. Doug says:
    October 25, 2012 at 2:05 pm

    Is their a certain amount of money I should put on a prepaid card? Meaning would 500$ work better than 150$? If so would it be smarter to save up for a larger prepaid card. Also should I use a prepaid or one of those crazy high interest rate cards for bad credit, which works better?

  2. Shante says:
    October 28, 2012 at 3:40 am

    If your prepaid card is stolen is there a a way to protect the funds on it.Meaning don’t want to not notice it missing and lose the money.

  3. Shelly Evans says:
    November 5, 2012 at 6:08 am

    Depends on the card. Some of them have a feature where you can call or go online and notify them that the card has been stolen or lost. When you choose your prepaid credit card you should verify with them what options you have available if your prepaid card is lost or stolen. If they do have this option available you should also make sure you are aware of any fees associated with canceling the card.

  4. Shelly Evans says:
    November 5, 2012 at 6:12 am

    Well if you are trying to build credit you might want to look at a bad credit credit card. Some prepaid cards will report to the credit bureaus, but most don’t. I know a few will report for a monthly feel. While bad credit cards will report monthly and will help you rebuild your credit.

    As for the amount you put on, its up to you and your spending habits. If your prepaid card has a “credit builder program” then you will want to put a larger balance on it. If they are reporting to the credit bureaus a $150 credit limit will not be impressive and really not help you with rebuilding your credit.

    Good Luck!!
    Shelly

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