In today’s world, having a bank account is the norm. Although, it’s not everyone’s norm. Many people don’t have a basic checking account – some by choice and others not. For those looking to build credit, it’s hard enough without a credit card, but not having a bank account makes it a little more difficult.
Bank accounts don’t directly improve your credit score, but bank cards support building credit. For example, a check card attached to your bank account usually has a Visa or MasterCard logo and can be used just like a credit or debit card. People use check cards to make electronic payments that get reported to the credit bureaus like electric bills and car loan payments.
Without access to a bank account, you don’t have access to a check card and the process of building credit can be cumbersome. Although it requires extra steps, you can build credit without a bank account.
Put reportable payments on a prepaid credit card
To build credit, you need to start making payments that get reported to the credit bureaus. These kinds of payments generally need to be made electronically. If you don’t have a bank account, you’re probably used to dealing with cash. However, with a few exceptions, cash payments won’t build your credit.
Prepaid credit cards are your best friend
You need credit to obtain a credit card and you need a bank account to get a debit card. However, credit isn’t required for prepaid cards and you don’t need a bank account, either. All you need is the cash to purchase the card and load it up.
In terms of establishing a history of on-time payments, credit bureaus don’t care if you pay your bills using a credit card, check card, or prepaid credit card. If you pay your reportable bills on a prepaid credit card, it will still show up on your credit report as having been paid on time and in full (provided you actually pay on time and in full).
Specific bills to put on your prepaid credit card
Use a prepaid credit card to make all purchases that get reported to the credit bureaus like your cellphone, electricity, internet, etc. If you’re paying in cash for certain bills, your payments might not get reported. It all depends on what the payment is and whether or not you pay in installments or if it’s a one-time cost. For example, if you pay cash for a car, your payment won’t get reported. However, if you take out a bad credit car loan, your monthly payments will get reported to the credit bureaus.
If you’re not good at managing your finances or tend to overspend, use a different prepaid card for each payment (if you can). For example, keep the card used for your car payments separate from the card you use to pay household bills. Don’t carry these cards in your wallet. That way, you won’t risk overspending when you go out to shop.
If your landlord doesn’t report your rent payments to the credit bureaus, ask if they’d consider reporting yours. There are rules that require landlords to receive a certain number of payments each month in order to report positive payments. However, landlords can pay a fee to report fewer rental payments.
Normally landlords give small discounts for paying electronically, but if your landlord won’t budge and you really need your rent payment to count toward boosting your credit, offer to pay a small fee. It doesn’t hurt to ask.
Prepaid cards aren’t the easiest, but they are effective
You can buy virtually anything with a prepaid card that you can buy with a debit or credit card. However, a prepaid card needs to be loaded first. This means prepaid card users must travel to the bank with cash in hand each time they want to load or reload their prepaid card.
When you’re working on building a better credit score, don’t let the extra steps get in the way. Soon enough, you’ll have the credit required to get a bank account and you can start doing things the easy way. You may even be able to get a secured credit card from your bank and start small with a $300 balance.
If a prepaid card is your only option, don’t waste any more time – start building your credit today.