Posts Tagged ‘build credit using a prepaid credit card.’

How To Build Credit Using A Prepaid Credit Card?

If you are struggling with your poor FICO score, you can build credit using a prepaid credit card. This is one of the safest and easiest ways to improve your credit worthiness. If you are consistent in your efforts and follow the right strategies without fail, this method can help you increase your FICO score dramatically within just a few months. Following is a brief rundown on some of the various aspects associated with the same.

You Can Easily Qualify For A Low Rate Prepaid Credit Card Despite A Poor Fico Score

A poor FICO score often turns out to be a big hindrance when it comes to getting new loans. Your applications for new loans or credit cards either will get rejected straightaway or will be accepted but with a very high rate of interest. This is not the case with a prepaid card. You can build credit using a prepaid credit card as it is very easy to qualify for. This type of credit card requires you to deposit a certain amount of money as security. You cannot spend more than what you have deposited. It means it is very much like using your own money. That is the reason why it is treated as a safe method. If you fail to make the repayment, the lenders will not have to suffer any loss, as they can recover the money from the security deposit you have made.

How Can It Help In Building Credit?

There are five major factors that are taken into account to determine your FICO score – timely debt payments, amount of debt Vs the credit limit, types of credit in use, length of credit history, and enquiries for new loans. You can build credit using a prepaid credit card by focusing on a couple of factors, such as timely payments, debt to credit ratio, and enquiries of new loans. You cannot do much about the length of credit history as it is just a matter of time, but a fourth factor, which is a “good mix of different types of credit” will be taken care of automatically if you use this method. You probably already have a mortgage, a car loan, an unsecured credit card, a personal loan, and others. By adding a secured credit card to this list, you are enriching the mix of credit. But, when it comes to achieving a better FICO score using this card, it will happen only when you work on the two main factors, which are – timely payments and debt-to-credit ratio. Timely payments make 35% of your score while the credit utilization ratio determines 30% of the score. You are strongly recommended never to use more than 30% of the total credit limit available on your prepaid credit card. Besides that, you must follow a strict budget plan in such a way that should ensure timely monthly payments toward the balances on this credit card. Do not just make the minimum monthly payment; always make the payments in full before the set due date.

Last, but not the least, while you are working on your strategies on how to build credit using a prepaid credit card, it is also important for you to make sure that the timely payments and other positive things get reported thoroughly to the credit bureaus.

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