I recently posted an article titled, “What Happens to Your Credit If You Cut Up Your Credit Cards?” From this post, we deduced that if you closed your accounts, your credit score would most likely go down, but not as much as one would think.
You may have a problem with spending, and you know that you should cut up your credit cards, but you are still nervous about what it might do to your score. If this is the case, I have the solution.
Let’s take a look at how your credit score is calculated, compliments of MyFICO.com.
If we would cut up our credit cards and close the accounts, two categories would weigh down on our score: “Amounts Owed” and “Length of Credit History”. Of course you will continue to pay your electric and heating bills, and this will help keep your score constant, but is there really a way to improve your score without credit cards?
Do Debit Cards Help Build Credit?
For some reason, many people have the belief that debit cards build credit. This is NOT TRUE. Using a debit card is just like writing a check. The companies that score your credit pay no attention to these transactions.
The Credit Builder
Finally, the solution. Pre-Paid Cards. These are basically a combination between Credit Cards and Debit Cards. You apply for the card, load it with a certain amount of money (most of the time it’s your choice how much), and then you can use it just like a credit card. You may not spend more than what’s on the card and it counts positively toward your credit score!
If you are budgeting properly (as we all should), I would suggest that you use this card for one of the categories in your budget. For example, my wife and I withdraw $400 every month for our food category. Rather than carry around the cash, it might be simpler to load that $400 onto the pre-paid card. This way we still have a limit on our expenses, plus we can build credit at the same time!
Where Do You Find These Pre-Paid Cards?
Here are some examples of pre-paid cards:
If you are interested in this idea, simply click on the links above for more information.
Have any of you looked into this option? If so, please comment!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.