The Green Dot Card Vs. Traditional Credit Cards: Which is Better for Your Credit Score?

As they increase fees and raise interest rates, credit card companies are growing more and more unpopular. Consumers are starting to make the switch to prepaid cards, as options like the Green Dot card offer no interest charges or penalty fees. However, before making this type of significant change, it's important for consumers to really examine the features of each card. Though you can easily see how a prepaid card could change your finances, you need to consider how it will affect your credit score. Traditional credit cards and prepaid cards aren't just different in the benefits they offer. They also have profoundly different effects for your credit rating. If you're thinking about getting a Green Dot card, be sure to consider these factors of your finances. Getting the Card Traditional Credit Cards: When you get a traditional credit card, you'll need to fill out an application and wait through an approval process. The company offering the card requests a credit inquiry from one of the major credit bureaus. Once they know your credit score, they'll determine your eligibility for the card. Prepaid Credit Cards: The Green Dot card requires no credit application. Because the card isn't attached to your credit score or your banking information, it doesn't impact your credit in any way. To get a card, you can either pick one up from a local retailer or online. The Winner: Without a doubt, getting a prepaid credit card is much better for your credit score. Generally, you lose points from your score each time someone requests your credit report. It doesn't matter whether or not the card is approved or denied; you can lose points simply for applying. When you get a prepaid card, the process is completely separated from your credit report. Making Purchases Traditional Credit Cards: When you make purchases with a traditional credit card and pay your bill regularly, you can actually improve your credit score. A good history of regular payments will boost your rating, which increases your eligibility for lower rates on other loans. Unfortunately, if you have difficulty making regular payments, your score will drop dramatically. You can also lose points for failing to pay the required minimum amount or for carrying a high balance. Prepaid Credit Cards: Since a prepaid credit card isn't connected to your credit history, making purchases will not impact your credit score. Though you can't improve your credit score by using your Green Dot card for purchases, you can prevent yourself from getting into further debt. Using a prepaid card is a good way to keep your score intact, as you won't accrue interest charges or penalty fees. The Winner: Whether you're making an online purchase or paying the electricity bill, you're probably better off using a prepaid credit card. You won't be able to build your score up with a history of regular payments, but you will be able to keep it from dropping due to costly mistakes. Paying in advance and avoiding debt continues to be one of the best ways to improve your credit. All About Payments Traditional Credit Cards: When the time comes to make a payment, you can build your credit score if you're careful to pay your card off in full each month. To do so, you'll need to pay the entire amount before the due date. Prepaid Credit Cards: Consumers with prepaid credit cards never make payments because they load their cards in advance. However, you can use your Green Dot card to make payments toward other bills. This can help you improve your credit rating by building a good payment history with your other accounts. The Winner: Paying your traditional credit card in full regularly is a good way to improve your credit score. If you don't think you'll be able to pay the whole balance each month, it's best to get a prepaid card. The amount you spend with your prepaid card is irrelevant to your credit rating. While you can use a prepaid card to improve your score by paying other bills, your score won't suffer if you find yourself in a tough financial situation. The Final VerdictrnMost consumers will have an easier time improving their credit scores by using prepaid cards. While it's possible to keep up a good credit rating with a traditional credit card,green dot card it is difficult for most people and requires careful attention. Prepaid cards allow you to keep your credit in good standing without the need for regular payments.