Do Prepaid Credit Cards Help Your Credit Score?

Quick Answer

Prepaid debit cards don't build credit because you spend your own money instead of borrowing.
Prepaid cards can be a good option if you don't qualify for a bank account or as an alternative to cash.
A secured credit card or authorized-user status can help you build credit instead.

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What Is a Prepaid Card?

A prepaid debit card is a payment card that allows you to spend money you load onto the card ahead of time. Unlike a traditional debit card, a prepaid card doesn't pull directly from a checking account at a bank or credit union.

For example, if you add $1,000 to a prepaid card using direct deposit, a transfer from a checking account or a cash reload at a participating retailer, you can only spend up to that amount before you'll need to load more funds.

Some prepaid cards come with monthly fees for account maintenance, cash reloads, ATM use and other services, so it's important to shop around and compare several options before picking one.

Do Prepaid Cards Build Credit?

Prepaid debit cards can't help you build credit because they only allow you to spend money you've preloaded into the account. You're not borrowing money from a credit card issuer, so there's no balance to repay.

When Is a Prepaid Card a Good Option?

There are several reasons people choose prepaid debit cards, including:

You don't have a bank account. You need a bank account to get a debit card and most regular credit cards. But if you have negative marks on your ChexSystems report, 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 and in-person purchases.
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 (though you'll likely need a parent to sign up for you).
You can't qualify for a regular credit card. Getting a regular credit card requires a credit check, meaning you might not qualify if you have poor credit or no credit history. 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 may offer different safeguards than credit and debit cards, but some may offer zero liability fraud protection. Keep in mind that protections often only kick in once the card is registered with the issuer.
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. However, you need to 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 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 all three credit bureaus (Experian, TransUnion and Equifax), 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. 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.
Choose a hybrid debit-credit card. A hybrid debit-credit card limits your spending based on your balance in a linked account or what you load onto your card. However, the card issuer structures payments in a way that allows them to report your activity to the credit bureaus, helping you build a positive payment history.

Is a Prepaid 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 you can sign up for free credit monitoring to track your progress.

How Good Is Your Credit Score?

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Do Prepaid Credit Cards Help Your Credit Score?

In this article:

What Is a Prepaid Card?

Do Prepaid Cards Build Credit?

When Is a Prepaid Card a Good Option?

Are Prepaid Cards Safe to Use?

Alternatives to Help You Build Credit

Is a Prepaid Card Right for You?

What Makes a Good FICO^® Score?

How Good Is Your Credit Score?

Resources

Latest Research

Latest Reviews

Credit support

Credit advice

Most popular

Credit reports

Credit scores

Improving credit

Establishing credit

Identity Theft support

Identity Theft Advice

Most popular

Identity theft and fraud

Cybersecurity

Privacy

Money advice

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Digital checking account

Save money on bills

Credit Card advice

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Balance transfer

Cash back

For bad credit

For fair credit

For students

APR

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In this article:

What Is a Prepaid Card?

Do Prepaid Cards Build Credit?

When Is a Prepaid Card a Good Option?

Are Prepaid Cards Safe to Use?

Alternatives to Help You Build Credit

Is a Prepaid Card Right for You?

What Makes a Good FICO® Score?

How Good Is Your Credit Score?

Resources

Latest Research

Latest Reviews

What Makes a Good FICO^® Score?