MyFICO offers tips on building credit scores


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Consumers who have suffered some economic hardships during the pandemic may be trying to mend their credit. MyFICO, the originator of FICO credit scores, offers some advice regarding credit cards.

Having a credit card, keeping your balance low, and paying the bill on time will improve your credit score in most cases, but consumers should understand the difference between the different types of payment cards.

Prepaid credit cards sold on retail gift card shelves may look like and you can use them like a credit card, but according to the experts at MyFICO, it doesn’t do anything to your creditworthiness. Since you are subpoenaing it with your own money, it actually has nothing to do with credit and transactions are not reported to the credit bureaus.

Here are the main differences between a credit card and a prepaid card:

  • You don’t have to fill out an application to open a prepaid credit card;

  • A lender will not check your credit report or conduct a credit inquiry when you open a prepaid card;

  • Prepaid credit card accounts do not appear on your credit report with any of the major credit reporting agencies;

  • Prepaid credit cards will not count towards your FICO scores.

Secured credit card

The reason a credit card is so important to your credit score is that it is an unsecured loan. The lender trusts the borrower to pay it back. The lender wants to make sure that the borrower is creditworthy.

Because of this, opening a credit card account can be difficult when you have low credit or no credit history. But MyFICO says there is an alternative – between a credit card that requires a high credit score and a prepaid card that lets you at least make purchases online.

A secured credit card is similar to a prepaid card in that the user deposits their own money in advance. But there is one important difference.

With a prepaid card, the consumer loads the card with cash and spends it out until the balance is zero. With a secured credit card, the consumer deposits the money with the lender. If the deposit is $ 500, the credit limit is $ 500 each month.

As long as the user makes the payment on time in each billing cycle, he can continue to use the card and keep the balance below the amount of his deposit. If he does not pay the entire balance every month, the lender charges interest – as with a normal credit card.

Stepping stone to a regular credit card

Most lenders who offer secured credit cards report payments to the credit bureaus. However, not all do this, so it is worth asking when considering an application.

After using a secured credit card and making payments on time for a year, many lenders offer their customers the option to apply for a regular credit card and the deposit will be refunded. At this point, a consumer should carefully weigh the pros and cons of different cards based on what they buy most often.

A good place to start researching maps is this ConsumerAffairs Credit Cards Buyers Guide that contains thousands of verified reviews of a wide variety of credit cards.

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