Improve Your Credit History With a Prepaid Credit Card

If you are one of the millions of people in the UK who have a poor credit history or have CCJ's or basically a negative profile which means that you are struggling to get a credit card, loan or mortgage, you already know that you are not alone. Migrants and others who have not yet had the chance to build a credit history are also placed in the same basket and hence, the numbers swell even further.

Well, help may finally be at hand due to the initiatives taken by some prepaid card firms to provide what are effectively being labelled as credit builder or credit repair tools to go along with prepaid card functionality which mean you can also enjoy the benefits of having access to electronic cash.

How does it work

Very simply is the short answer to that one as prepaid cards represent what is effectively a rather low risk solution to a poor or non-existent credit history.

Firstly, you need to apply for a prepaid credit card from these companies.

Now this is useful in itself because it means you now already have access to a piece of plastic which you can use in-store, online and over the phone as you would a credit or debit card. If it is a MasterCard prepaid card, this would mean access to 28.5 million retailers around the globe and over 1 million ATM's.

Now comes the interesting part and that is the Credit Builder or Credit Repair facility at no extra cost.

What these companies tend to do is to give you a small, interest-free loan that would be equivalent to the amount used to pay 12 monthly fees that you would pay for using your prepaid card for a year.

• So if the monthly fee for the prepaid card was £5, then the prepaid card firm would give you a £60 loan on to your prepaid credit card.
• The loan amount simply sits on your card and no money actually changes hands and hence, is not actually available for you to spend.
• Every month as you use your card and pay your monthly fee, it is actually akin to paying back your monthly loan instalment (£5 per month)
• You continue to pay back until you have paid back the full loan amount
• The prepaid card company then reports your excellent payment behaviour back to the Credit Referral agencies and experts and
• Viola, you would have demonstrated that you can manage credit responsibly, so your credit rating should improve.

Well, there really is no catch because the prepaid card company gets a loyal customer for 12 months to start with. Furthermore, even though they have loaned the money to you, the funds are actually ring fenced and secure and the money is never actually available for you to spend and can only be used to pay back the loan amount. So you should see your credit rating improve as long as you carry out the steps mentioned above and continue to manage any other credit or loan accounts that you hold responsibly as well.

What Else do I need to Know

It is important to remember of course that Credit Reference Agencies compile credit histories from a number of sources, including the electoral roll, county court judgments and see how effectively past debts have been paid and not just from your prepaid credit card and hence, it is important to complete all credit agreements according to the terms and not open too many accounts in a short period of time as every time you open a new form of credit, it leaves an electronic footprint on your record.