Prepaid Credit Cards to Help Rebuild Credit

Prepaid credit cards are credit cards in name only. In reality, they are cards that you can use to make purchases with money you've deposited into the card account. Since you're not actually using credit in the traditional sense of borrowing money and then paying it back, they are not the best vehicles for building credit. Still, some cards have features that can help you rebuild your credit.

How Prepaid Cards Work

Prepaid cards are similar to debit cards in that you make a deposit into an account and can only use the card up to the amount you deposited. But unlike debit cards, which are linked to a bank account in the same way checks are, prepaid cards are stand-alone accounts. Most card accounts require a minimum deposit of between $200 and $1,000. When the money's gone, you need to put more money into the account in order to use it.

Credit Building Features

Some cards have specific features designed to help people rebuild their credit. Orchard Bank MasterCard, for example, reports to the three major credit bureaus -- Equifax, Experian and TransUnion -- every month to help its secured cardholders build a credit history. Others, such as the Visa Rush Card, offer online bill pay with the card and report those monthly payments to credit reporting agencies PRBC and LexisNexis, which some companies use to make credit decisions. These are not as widely used as the three major agencies, but they can help.

Fees

One downside to building credit with prepaid cards is the fees that are often associated with them. Some cards charge a fee just to join. There are also often overdraft fees, transaction fees and ATM fees, though some cards don't have these. Some credit builder services are only available for a fee.

Other Options

Some other ways of building credit trump prepaid cards because prepaid cards can be expensive and not all of them report to the credit bureaus. Instead, you can ask some creditors you've made faithful payments to, such as cell phone companies or apartment leasing companies, to report your payments to the credit bureaus. This costs nothing. You can also apply for store credit at a home supply or department store and make a few purchases you pay off each month. However, the credit scoring system doesn't look kindly on consumers who have a lot of these kinds of cards.