Do Prepaid Credit Cards Help Your Credit Score?

Do Prepaid Credit Cards Help Your Credit Score? article image.

At Experian, one of our priorities is consumer credit and finance education. This post may contain links and references to one or more of our partners, but we provide an objective view to help you make the best decisions. For more information, see our Editorial Policy.

A prepaid credit card looks like a regular credit card, but there's one big difference: It won't help your credit score like a regular credit card can.

Regular credit cards allow you to take on debt, and how you repay that debt is an important factor in your credit scores. A prepaid credit card, on the other hand, works more like a debit card you load with money and make purchases with until the money is gone. Since you aren't borrowing any money with a prepaid card, the account isn't reported to the credit bureaus, and won't have any effect on your credit score.

Prepaid Credit Cards Will Not Affect Your Credit Score

Every time you use a regular credit card to make purchases, you borrow money from the card issuer. Then, you can either repay this debt in full before the end of your billing period, or make at least a minimum monthly payment and let the remaining balance carry over (or "revolve") to the following month. If you carry a balance, you'll accrue added costs in the form of interest charges.

Credit card companies typically report your payment activity to one or more of the three major consumer credit bureaus (Experian, TransUnion and Equifax). On-time payments help build a credit history and improve your credit score.

A prepaid card works differently. You put your own money into the prepaid card account, and the amount you spend is limited to the account balance. Once the prepaid balance is exhausted, no more purchases can be made. If the prepaid card is reloadable, you add (or "load") money onto the card as needed. Non-reloadable prepaid credit cards, often sold as gift cards, are no longer usable when the funds are gone.

Your use of prepaid credit cards is not reported to credit bureaus, so they don't affect your credit score.

When Is a Prepaid Credit Card a Good Option?

There are several reasons people choose prepaid credit cards.

  • You don't have a bank account. You need a bank account to get a debit card and most regular credit cards. You can buy a prepaid credit card with cash and get the convenience of a payment card without a bank account.
  • You want an alternative to cash. Prepaid credit cards can be more convenient than carrying cash or for businesses that don't accept cash. If you can't get a credit card or debit card, you can use a prepaid card to make online purchases. A prepaid credit card can be used anywhere the card's payment network, such as Visa, Mastercard or American Express, is accepted.
  • You're under 18. You must be at least 18 to get a credit card in your name. If no one is willing to add you as an authorized user on their credit card, a prepaid credit card could be an alternative.
  • You can't qualify for a regular credit card. Getting a regular credit card requires a credit check; if you have poor credit or no credit history, you may not qualify. There's no credit check for prepaid credit cards; you can get one at drugstores, office supply stores, gas stations, supermarkets and online, and start using it right away.
  • You want fraud protection. Prepaid credit cards offer safeguards similar to what credit cards and debit cards do. Cardholders are only liable for up to $50 if an unauthorized charge is reported within two days of its occurrence, according to federal rules. Some protections only kick in once the card is registered with the issuer. If your card is lost or stolen, the card issuer may transfer your balance to a new card.
  • You want help budgeting. If you tend to overspend, a prepaid credit card can restrain you, because spending is limited to the money in your account.
  • You want to give someone money. Parents sometimes use prepaid credit cards to give children allowances. You can also give a housekeeper or nanny a card they can use to make purchases for your family, like buying groceries.

Are Prepaid Cards Safe to Use?

Prepaid credit cards offer some protections in case of loss or fraud. Once you get your card, register it immediately and write down the number on the back of the card. If the card is lost or stolen or you notice a suspicious withdrawal, call the number right away.

Your responsibility for fraudulent or mistaken charges on a prepaid debit card is limited as long as you report it right away. If investigating the dispute will take more than 10 business days, card issuers are typically required to credit the amount in question back to your account while the problem is resolved.

Some prepaid cards offer deposit insurance, which protects the money in your account if the card issuer goes out of business. You must register your card to get this protection.

To lessen the risk of loss from a prepaid credit card, keep the card in a safe place and limit the amount you load to the account.

Alternatives to Help You Build Credit

If you can't get a regular unsecured credit card but would still like to build credit, here are two alternatives that offer convenient ways to pay with the added benefit of reporting payments to the credit bureaus.

  • Get a secured credit card. Secured credit cards work like regular credit cards, except that you put down a refundable security deposit that serves as collateral and reduces the lender's risk. Your security deposit generally determines the card's credit limit. Choose a card that reports to at least one credit bureau, use it for small purchases, and pay your bill on time to potentially give your credit score a lift.
  • Become an authorized user. If you have a family member with a good credit score, becoming an authorized user on one of their credit cards allows you to benefit from their positive credit history. You'll be authorized to make purchases with the card, but the primary account holder is ultimately responsible for payments. If the card issuer reports authorized user activity to the credit bureaus, the account will appear on your credit report and potentially help improve your credit score.

Is a Prepaid Credit Card Right for You?

Prepaid credit cards offer some advantages over cash but won't help improve your credit score. To build credit, you may want to get a secured credit card or become an authorized user on a family member's card instead. Use these payment methods responsibly to help improve your credit—and sign up for free credit monitoring to track your progress.

How Good Is Your Credit Score?

300 credit score301 credit score302 credit score303 credit score304 credit score305 credit score306 credit score307 credit score308 credit score309 credit score310 credit score311 credit score312 credit score313 credit score314 credit score315 credit score316 credit score317 credit score318 credit score319 credit score320 credit score321 credit score322 credit score323 credit score324 credit score325 credit score326 credit score327 credit score328 credit score329 credit score330 credit score331 credit score332 credit score333 credit score334 credit score335 credit score336 credit score337 credit score338 credit score339 credit score340 credit score341 credit score342 credit score343 credit score344 credit score345 credit score346 credit score347 credit score348 credit score349 credit score350 credit score351 credit score352 credit score353 credit score354 credit score355 credit score356 credit score357 credit score358 credit score359 credit score360 credit score361 credit score362 credit score363 credit score364 credit score365 credit score366 credit score367 credit score368 credit score369 credit score370 credit score371 credit score372 credit score373 credit score374 credit score375 credit score376 credit score377 credit score378 credit score379 credit score380 credit score381 credit score382 credit score383 credit score384 credit score385 credit score386 credit score387 credit score388 credit score389 credit score390 credit score391 credit score392 credit score393 credit score394 credit score395 credit score396 credit score397 credit score398 credit score399 credit score400 credit score401 credit score402 credit score403 credit score404 credit score405 credit score406 credit score407 credit score408 credit score409 credit score410 credit score411 credit score412 credit score413 credit score414 credit score415 credit score416 credit score417 credit score418 credit score419 credit score420 credit score421 credit score422 credit score423 credit score424 credit score425 credit score426 credit score427 credit score428 credit score429 credit score430 credit score431 credit score432 credit score433 credit score434 credit score435 credit score436 credit score437 credit score438 credit score439 credit score440 credit score441 credit score442 credit score443 credit score444 credit score445 credit score446 credit score447 credit score448 credit score449 credit score450 credit score451 credit score452 credit score453 credit score454 credit score455 credit score456 credit score457 credit score458 credit score459 credit score460 credit score461 credit score462 credit score463 credit score464 credit score465 credit score466 credit score467 credit score468 credit score469 credit score470 credit score471 credit score472 credit score473 credit score474 credit score475 credit score476 credit score477 credit score478 credit score479 credit score480 credit score481 credit score482 credit score483 credit score484 credit score485 credit score486 credit score487 credit score488 credit score489 credit score490 credit score491 credit score492 credit score493 credit score494 credit score495 credit score496 credit score497 credit score498 credit score499 credit score500 credit score501 credit score502 credit score503 credit score504 credit score505 credit score506 credit score507 credit score508 credit score509 credit score510 credit score511 credit score512 credit score513 credit score514 credit score515 credit score516 credit score517 credit score518 credit score519 credit score520 credit score521 credit score522 credit score523 credit score524 credit score525 credit score526 credit score527 credit score528 credit score529 credit score530 credit score531 credit score532 credit score533 credit score534 credit score535 credit score536 credit score537 credit score538 credit score539 credit score540 credit score541 credit score542 credit score543 credit score544 credit score545 credit score546 credit score547 credit score548 credit score549 credit score550 credit score551 credit score552 credit score553 credit score554 credit score555 credit score556 credit score557 credit score558 credit score559 credit score560 credit score561 credit score562 credit score563 credit score564 credit score565 credit score566 credit score567 credit score568 credit score569 credit score570 credit score571 credit score572 credit score573 credit score574 credit score575 credit score576 credit score577 credit score578 credit score579 credit score