You Can Prepay Your Way to a Better Credit Score

February 4, 2008 By Debbie Dragon

It’s unfortunately very easy to get into debt that’s bigger than causes larger monthly payments than you’re able to pay.  Before you know it, you can be left with a damaged credit history and a lower-than-average credit score that results in difficulty in getting additional credit in the future.  Credit scores and your credit history reports are also playing a role in car insurance premiums and an individual’s ability to get employment with some companies, so it’s more important than ever that we do all we can to keep or establish good credit.

What you may not know, is that there are pre-paid credit cards, sometimes called “Secured credit cards” are cards that report your activity to the credit bureaus.  If you do not have any open credit cards (often, people who are in over their heads in debt might negotiate better repayment terms or join a credit counseling service that requires the cards be unuseable while the payments are being made) you can re-establish your credit with pre-paid credit cards that report to the credit bureaus. 

Pre-paid credit cards are backed by a traditional card issuer, like Visa or Mastercard.   When you open the account you make a deposit, which becomes your credit limit (less any fees the pre-paid card company may charge you to have the account).  You can only spend as much money as you’ve deposited- so in that sense it works very much like a checking or savings account debit card- except that when you choose a pre-paid card that reports to credit bureaus you can build your credit or re-establish good credit if you’ve had problems that have lowered your score in the past.

Another bonus of using pre-paid credit cards is that some of them offer rewards similar to the rewards programs of a traditional credit card.  You could find cards with travel or cash back rewards, just keep an eye on how much the annual fee is for the card or what other kinds of fees your required to pay.  Sometimes a pre-paid card will charge a “monthly maintenance fee”, and you’ll want to select one without this additional fee if at all possible. 

Posted in credit cards, credit score, financial problems

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