Can a Prepaid Debit Card Help Your Credit Score?

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If you want to build your credit, a common dilemma is you need a good credit to get a credit card. If you’re a student, you’re in luck because you can typically apply for a student credit card and start building your credit profile. Otherwise, getting a credit card to build your credit could be a challenge if you have a poor credit. To make the matter more confusing, the credit card industry introduce new products, such as prepaid debit cards and secured credit cards to the mix.

Prepaid Debit Cards

You may have heard that a prepaid debit card is a good alternative to a real credit card if you have bad credit or no credit at all. Although it’s a good alternative, using a prepaid debit card does not help you build your credit. Prepaid debit cards work like debit cards, and unlike traditional credit cards.

Money charged to a traditional credit card is a loan where you are extended a certain amount of credit that you must repay — your usage and repayment activities get reported to the credit bureaus. On the other hand, you are using your money that you added to the card when you use a prepaid debit card.

In any case, prepaid debit card does offer you the convenience of a credit card, and if you’re interested in getting one, you can check this list of free prepaid debit cards.

Secured Credit Cards

On the other hand, a secured credit card can help you build your credit — whether to establish your credit, or improve bad credit.

A secured credit card is similar to a prepaid debit card in a sense that you make a deposit into an account. The difference is that your purchases are not deducted from your account balance, instead the money for your purchases is loaned to you and you must repay your loan the same way you do a credit card.Your account simply acts as a collateral that the back can seize in case you do not repay your loan. This is why it’s called a secured credit card and why it could help improve your credit score.

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