How to Rebuild Credit With a Pre-Paid Credit Card

Consumers need credit for a variety of reasons. Without good credit, an individual will not qualify for a car loan, home loan, personal loan or apartment lease. Employers run credit checks as a means of determining how a job candidate conducts his personal life and to ensure they are not hiring an individual that may embezzle to compensate for bad debts.

Prepaid credit cards allow consumers with otherwise derogatory credit to obtain credit in their name and build creditworthiness.

Things You'll Need

• Prepaid credit card
• Credit reports

Instructions

1. 

   Thoroughly research prepaid credit card offers, ensuring that those particular cards report to at least one of the three credit agencies (TransUnion, Experian and Equifax). If a card does not report to at least one of the three, it is not a viable option for establishing or rebuilding credit.

2. 

   Make a list of each card being considered and all fees associated with each. Do not be concerned with credit limits, as fees are the most important factor in assisting to establish or rebuild credit. Cards with the highest fees should be eliminated from consideration, as high fees make monthly payments more difficult to meet.

3. 

   Apply for the prepaid credit card that has the lowest fees and use it for one particular, low-cost expense on a monthly basis. Do not use the card for higher-cost monthly expenses such as groceries.

4. 

   Pay the entire outstanding balance each month. Do not make only the minimum payment, as fees and interest will accumulate faster than the ability to amortize the balance. Keep a detailed and current record of all transactions, and account for all fees and interest, along with purchases.

5. 

   After three months, request copies of your credit report from all three bureaus to ensure the card is being reported to the credit agencies. Repeat this process again after six months of obtaining the prepaid credit card.

Tips & Warnings

• Open a secure credit card account. Nearly all of these accounts are reported to the three credit agencies.

• Many prepaid credit cards do not report to any credit bureau; consequently, they do not build or improve credit.

• Responsible use of credit is precarious at best.

References

• Federal Trade Commission
• Credit Cards.com
• Dave Ramsey