If you have a string of debt defaults against your name, having a poor credit rating can feel like a millstone around your neck. It makes it difficult to obtain finance from conventional lenders and apply for a mortgage; although there are many other reasons why you might get rejected for a mortgage. Many people fall into the classic Catch 22 trap – how do you rebuild your credit history and lenders’ confidence in you if they won’t provide you with credit? Fortunately, there is a proactive way to rebuild your credit rating. Some prepaid debit cards are now designed to help individuals leave their chequered credit history in the past and look to the future with a renewed sense of positivity.
That’s because some prepaid debit cards are now launched with an in-built “Creditbuilder”. For prepaid debit card customers to have access to this Creditbuilder facility, prepaid card providers charge a monthly fee, but don’t panic, this is good news. Typically, you will be required to agree to use one of these cards for a minimum of 12 months. To access the Creditbuilder add-on, you will have to pay the card provider a set monthly fee.
Introducing faux “loan agreements”
This monthly fee is packaged up into a faux “loan agreement”. You aren’t required to borrow any funds. All that happens is that your monthly fee covers the card’s Creditbuilder fees for the period of the “loan term”. Are you still with us? Let’s take a look at a working example:
Let’s pretend that you signed up for a new prepaid debit card, complete with a Creditbuilder facility. You agree to use the card for a minimum of 12 months and the usage fee – that covers the cost of the Creditbuilder fees – is $4.99 a month. This means that your “loan agreement” would total $59.88, which would technically be paid back in monthly instalments of $4.99 per month. Each monthly fee that is taken from your account will be credited against your “loan agreement”, with each successful payment visible to all of the leading credit agencies. By making small “loan repayments” in this way, you will begin to see an improvement in your credit rating.
The great thing about a prepaid debit card is that acceptance when applying for a card is virtually guaranteed. There are no credit checks necessary, nor do card providers ask for proof of income. It’s the ideal starting point to mend your poor credit history. Of course, it’s only worthwhile taking out a prepaid credit card if you can afford the monthly card fee. If you were to default on your monthly Creditbuilder “loan” this could have disastrous consequences, leaving your credit rating at rock bottom – a huge credit score mistake.
Prepaid debit cards are accepted (almost) everywhere
Using a prepaid debit card shouldn’t restrict you from doing the things you love either. Whether it’s paying for a date night meal with your girlfriend or playing your favourite games online. If you enjoy a weekly session of Texas Hold’em, that’s still possible. For instance, the CashPlus Prepaid Card is a Mastercard, which is one of several accepted payment methods at the leading online poker rooms.
Of course, there are various other tasks you can undertake to rebuild your credit rating. These include getting your name on the electoral roll, checking legacy or inactive accounts and reviewing your credit files with credit agencies, to ensure there are no anomalies on your files that are dragging your credit rating down unnecessarily. These tasks can all be undertaken free of charge, but you should not look to these tasks as an alternative to using a prepaid debit card “Creditbuilder”. Instead, they should augment your plan to rebuild your long-term credit history, helping you to gain eventual acceptance for financial products and services that can enhance your life.
A prepaid debit card isn’t designed solely for rebuilding credit ratings, it can also be a useful budgeting exercise. That’s because you can’t spend more than the amount of money you pre-load onto the card, so there is no temptation to spend beyond your means – win-win!