Do Prepaid Credit Cards Build Credit?

No, prepaid credit cards generally do not build credit. Despite the name, a prepaid credit card is not technically a traditional credit card.

You load your own money onto the card and spend from that balance. Because you are not borrowing money, your everyday prepaid card purchases are usually not reported to the credit bureaus.

KOHO Credit Builder

KOHO Credit Builder is designed to help Canadians establish or build their credit history through consistent monthly payments, without relying on a traditional credit card.

With KOHO Credit Builder, you can:

• +74 points average credit score increase seen using our credit building tools*

• Get approved without a hard credit check or minimum deposit

• Pay no interest on the line of credit

• Track your credit score and credit report directly in the KOHO app

• Build your credit history with monthly payments reported to the credit bureaus

Why Don't Prepaid Credit Cards Build Credit?

Credit scores are based largely on how you manage borrowed money.

A prepaid credit card does not give you a traditional credit limit. You spend money that is already loaded onto the card.

There is no balance to borrow and repay, so regular prepaid card activity usually does not create payment history on your credit report.

What Does Help Build Credit?

Products that report your payment activity to the credit bureaus can help establish credit history.

These may include:

• Credit cards

• Secured credit cards

• Credit builder products

• Personal loans

• Lines of credit

• Mortgages

The important part is making payments on time and managing the account responsibly.

Can a Prepaid Credit Card Hurt Your Credit?

Usually not.

Since a standard prepaid card is not a traditional credit account, normal purchases and balances generally do not affect your credit score.

Applying for a prepaid card also commonly does not require a hard credit check.

Prepaid Credit Card vs. Secured Credit Card

A prepaid credit card and secured credit card may look similar, but they work differently.

With a prepaid card, you load money first and then spend it.

With a secured credit card, you provide a security deposit but still receive a credit limit. You borrow when you make purchases and then repay the balance.

A secured credit card can help build credit if the issuer reports your payment activity to the credit bureaus.

Should You Get a Prepaid Credit Card If You Want to Build Credit?

A prepaid credit card can still be useful for budgeting, online shopping and everyday spending.

However, it should not be your only strategy if your main goal is building credit.

The key distinction is simple: prepaid credit cards help you manage spending, while credit building products are designed to create payment history.