Can Prepaid Cards Rebuild Your Credit?

Many consumers apply for and maintain a credit card in order to keep their credit history solid and also for the convenience credit cards provide, particularly during an emergency situation. For many individuals who have been through financial difficulties in the past, there is difficulty in getting a conventional credit. With the recession and the current credit crunch, it is even harder than ever to get a new credit card if you have bad credit. But in order to re-build your credit, you need to have a credit card and use it responsibly.

There are several ways for a person with bad credit to get a credit card to rebuild their poor credit. One way is to get a secured credit card.  These cards allow to deposit money in the credit card company’s account and use the credit card as you normally would. Each purchase will be deducted from your initial and subsequent deposits. The good thing about secured cards for people with bad credit is that most of the companies offering secured cards will also report your credit usage back to the major credit reporting agencies, including Experian, TransUnion, and Equifax. Since your credit card bill is essentially paid in full each month, your credit score can be boosted from using this type of credit card.

Another method, using the same principles as the secured credit card to rebuild credit, is to use prepaid credit cards.  Prepaid credit cards are common and often used as gift cards during the holidays and other special occasions. However, many consumer are not aware than several of these prepaid credit cards do report back to the credit bureaus and can help you to improve a bad credit score.

Finding a prepaid credit card will take some research and on most applications you can find information about whether or not the credit card company will report your account activities from the prepaid card. If the application does not provide this information, call the credit card company directly and ask them. Although, most companies will be sure to promote the fact that they do report your credit information to the bureaus because it is a major selling point for the credit card itself.

Prepaid cards may be a good way for those who have fallen out of the good graces of credit to get back on their feet again. If the positive activities are being reported, you can improve your credit score. You can also use a prepaid card to re-learn how to spend wisely. If you are limited by what you can spend at any one time, you can start practicing better financial habits. If you know you only have $50 left on your prepaid card, you will be forced to stick to your budget.

Because there are so many cards on the market today, it is important your read all of the terms and conditions before signing up for a card. If you have bad credit, you have to research and find the best card for you and one that won’t cost you an arm and a leg just to have the card. Do research online where you can compare different cards in the prepaid category. The more knowledge you have before filling out an application, the better decision you can make for your finances. Not all credit cards are alike so be sure to check out the different fees, charges, and annual percentage rates offered by different credit card companies. Rebuilding your credit means making smarter financial decisions if you wish to get out of debt and remain financially free.

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This entry was posted on Thursday, February 19th, 2009 at 5:44 pm and is filed under Debt & Consolidation, Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.