Do Prepaid Debt Cards Raise Your Credit Score?
Do prepaid credit cards report to credit bureaus. The short answer is NO, they do not, hence they do nothing to help your credit score.
The reason why prepaid debit cards do not report to credit bureaus is because they are technically not credit products. They essentially act like ATM cards.
Having said that, some credit bureaus are looking at potentially making use of “credit-like” services like cell phone payments and utility payments as factors in a credit profile. The rationale is that since these services require regular payments, they could be good indicators of a risk profile of a consumer. Experian has found in some studies that these could be good indicators1.
The reason why things like utility payments are not included in credit reports even though they have been found to be reliable indicators are that many states actually prohibit utilities from reporting to credit bureaus. Organizations like the National Consumer Law Center (NCLC) has presented evidence on why reporting utility payments should not be allowed to be reported to the credit bureaus2. Their key arguments are that at present, almost all late utility payments are never reported to the credit bureaus unless they have been sold to collection agencies. Many lower income do not pay their utility bills on time because of cash flow mismatch.
Another obstacle for companies reporting payments to credit bureaus is that the FCRA (Fair Credit Reporting Act) and FACT (Fair and Accurate Transactions Act) placed stringent requirements on businesses and entities if they report information to credit bureaus. This is understandable because as a consumer you want a set of consistent rules and accurate reporting. Many firms do not have the infrastructure to do so.
Though prepaid debit cards are not reported to the credit bureaus, there are attempts to use these cards to help consumers than in its present form. For example, Suze Orman has just come up with her own prepaid debit card3. One of the selling points of her card was that your payment data will be shared with TransUnion so that they could use the data as a study to see if there is any correlation with your prepaid debit card use and credit worthiness.
American Express has also introduced a prepaid card. And on their website, they have stated that based on the usage of the prepaid card, it may result in an offer for one of their regular charge cards.
References
1. Experian FAQ: Prepaid cards do not build credit history.
2. NCLC presentation on utilities reporting payments to credit bureaus
3. Suze Orman’s Prepaid Card
