Do Prepaid Credit Cards Improve Your Credit Score?

Banks check your credit score before they issue a credit card. If you have poor credit, qualifying for a traditional card can be tough. A prepaid credit card may be convenient, but it's wise to learn how that option affects your credit score.

Identification

A prepaid credit card is a card that you add funds to and use as a credit card. The card will have a Visa or MasterCard logo. These cards do not require a credit check for approval. They are marketed to consumers that do not have a bank account or have poor credit.

Significance

Prepaid credit cards can be used like traditional credit cards for purchases and bill payments. They do not require monthly payments and can only be used as long as there is cash on the card. These cards do not require a credit check and thus, they also do not report to the credit bureaus. As such, they cannot improve your credit score.

Considerations

A credit card that can improve your credit score is a secured credit card. These cards are geared toward consumers that have credit problems. By placing your deposit in a savings account or certificate of deposit with the issuing bank, your credit limit will be equal to the amount of your deposit. These cards do report to the credit bureaus and can help increase your credit score, as long as you use it responsibly.