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Do Prepaid Cards Build Credit?

6 min read

Last Updated: June 26, 2025

Table of contents

Key Takeaways

Credit bureaus don’t receive information from prepaid card transactions, so you can’t use a prepaid card to build credit history.
If you want to begin building your credit history, consider applying for a secured credit card instead of using a prepaid card.
Prepaid cards have several practical applications as alternatives to cash, credit, or debit cards.

You can withdraw money from an ATM, buy an outfit online, pay a bill, or cover lunch with a prepaid card. However, those transactions won’t help build credit history, because prepaid cards don’t extend credit. Instead, they function a lot like cash.

Unlike prepaid cards, credit cards allow users to borrow from a fixed amount of available credit, which you must repay by the due date. If you don’t make your monthly payment by the due date, you may be charged interest on your remaining balance. On-time payments contribute to a positive payment history, which is part of your credit.

A solid payment history contributes to a good credit score. Missed or late payments may contribute to a poor credit score.

What is a prepaid card?

A prepaid card is a type of payment card. You might hear it called a prepaid debit card, but it’s different from a regular debit card. Some people might also call it a prepaid credit card, but this is misleading, as there are many differences between prepaid cards and credit cards.

When you pay for the prepaid card, you’ll load a certain amount of money onto it. Then, when you make a purchase using that card, funds are transferred from the card to the merchant. It’s a lot like a gift card, but you can use it almost anywhere.

Grocery stores, malls, and drug stores often sell prepaid cards for a fee. That means you pay for the total value that’s on the card plus an additional charge. Prepaid cards don’t connect to any bank or credit accounts. Once you exhaust a card’s funds, you can no longer use the card (unless you reload it with cash or via a deposit online).

With credit cards, you can build your credit history as you make purchases and payments through your credit account. This is because your credit card issuer reports your activity (including your payments, balance, and credit limit) to at least one of the three major credit bureaus.

Instead of borrowing from a bank or creditor, you can only use prepaid cards to access the funds you’ve already loaded onto them.

How does a prepaid card work?

Prepaid cards function similarly to gift cards in that they contain a fixed amount of cash. These cards only allow you to access the money you’ve deposited to them directly.

Prepaid cards may charge fees for transactions, balance inquiries, and general account maintenance. You could end up chipping away at the balance more quickly than you expect. You can use a prepaid card almost anywhere you can use a debit or credit card, including ATMs and online stores.

The prepaid card company doesn’t report any of your activity to a credit bureau. This is why prepaid cards don’t help you build credit.

When you use a credit card, you usually have a set credit limit that you can’t exceed. Unlike a prepaid card, however, you can repay your credit purchases over time. Credit card companies track your credit card usage.

Your credit card company reports your monthly balance and any payments made or missed to the three major credit bureaus. The credit bureaus use that information to build your credit report, which lenders and other financial institutions use to determine your creditworthiness.

Can a prepaid card help build credit?

You build credit history when you make a transaction with a credit card, but prepaid cards aren’t credit cards. If you want to build your credit history, a secured credit card or student credit card may be a better fit.

Like prepaid cards, using secured credit cards begins with a deposit. From there, however, the two tools work very differently. For a secured card, the credit limit (the maximum amount you can borrow) is usually equal to your deposit. So, if you make a deposit of $750, you’d be able to use $750 of credit. The credit card company then reports your activity with the secured card to the credit bureaus.

These types of credit cards may have more lenient credit history requirements than a traditional or unsecured credit card. Even if you have a low credit score, your deposit reassures the card issuer that the loan will be repaid. Using a secured card responsibly may allow you to build a positive credit history and a higher credit score.

Did you know?

If you’re new to credit and want to build your credit history, the Discover it^® Secured Credit Card helps you build your credit history with responsible use.¹ You can upgrade to an unsecured card after six consecutive on-time payments and six months of good status on all your credit accounts.²

Learn More

When are prepaid cards the best option?

While prepaid cards don’t help in building credit, they may be helpful in certain situations.

You need help limiting your spending

A prepaid card can help you manage your personal budget. If you need extra support in limiting your spending, you may want to load a prepaid card with an amount designated for a particular spending category, like eating at restaurants. This could help you avoid spending more than you wanted in that category.

You don’t qualify for a regular credit card

You may not meet the requirements for a credit card. For example, applicants must be at least 18 years old with a regular source of income. Each credit card issuer may have other requirements.

If you have a low credit score or have a history of missed payments, you may find it hard to qualify for a standard card. This is when a secured card or a prepaid card could be helpful.

You want an alternative to cash or give a gift

Prepaid cards provide a convenient alternative to cash. You may want to give someone a gift card but you don’t know what store they’d like to shop in. And if you want the recipient to be able to shop online, they won’t be able to use cash. In this case, using a prepaid debit card may be more convenient.

The bottom line

While prepaid cards may be a convenient alternative to cash if you can’t access credit, using a prepaid card doesn’t help you in credit-building. Many financial tools and significant purchases require a credit check, an established credit history, and typically a good credit score. You often need a credit history to take out a home mortgage or finance a new car, for example.

Everyone has to start somewhere, though. Secured credit cards or student credit cards could help you start your credit history and equip you for future financial choices.

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