Consumers look beyond traditional credit cards
Consumers struggling to either be approved for a credit card or are worried about accumulating debt often opt to use prepaid cards. According to the U.S. Federal Reserve, prepaid debit cards accounted for 10.5% of all card payments in 2018 (down slightly from 2015 but still showing steady growth). It’s become clear many consumers continue to use prepaid cards for a variety of reasons. For instance, during the COVID-19 pandemic, prepaid cards have given consumers without access to credit or debit cards a way to make contactless payments.
What is a prepaid card?
A prepaid card works and looks just like a debit or credit card, but money is loaded onto the card at the time of purchase. For example, a consumer buys a $200 prepaid card, pays the purchase fee (e.g. $4.95), and the total comes to $204.95. They can then use the money loaded onto the card to make purchases online or in-person.
Once the balance depletes, most can be reloaded for a fee. Essentially, these cards expand purchase options for consumers since they work like plastic but operate like cash. Like cash, they do not provide the same protections (e.g. lost, stolen, or fraudulently used) debit and credit cards do.
Can consumers use a prepaid card anywhere?
Since most prepaid cards are affiliated with card networks such as Visa, MasterCard, American Express, or Discover, they can be used exactly like a debit or credit card. Any vendor, merchant, or e-commerce retailer accepting these networks will take prepaid cards as payment, providing they have sufficient balance to cover purchases.
Does using prepaid cards help build a credit score?
While using prepaid cards feels just like a credit card, this payment option does not help a consumer build their credit score because credit companies do not track these purchases. On the plus side, anyone can get a prepaid card which means consumers with low or subprime credit scores can still enjoy the purchase benefits associated with credit cards. They also eliminate the possibility of creating high debt like credit cards often do, so from a debt management perspective, they can be an indirect way to help build a healthy credit standing over time.
What can build your credit score?
Consumers who struggle getting approved for credit, are bank underserved or have low credit often encounter hurdles when trying to build a traditional credit score. Fortunately, there is another great option for them – alternative credit scores. Alternative credit scores help consumers gain access to credit because they can demonstrate their reliability by paying their regular everyday bills.
PRBC is committed to helping consumers build an alternative credit score. A PRBC credit score is a lot like a traditional score. As long as you pay your monthly bills on time, you can build credibility with lenders and other issuers of credit. To learn more about our alternative credit score solution, contact us today.