One of the downsides of prepaid cards is using one doesn't get you any closer to getting credit. American Express is changing that.
The credit card issuer is inviting qualified holders of its prepaid card to apply for a charge card. The program is called "Make Your Move," and the company will evaluate prepaid cardholders for a minimum of six months before extending the offer to apply, says American Express spokeswoman Leah Gerstner.
While there's no specific set of requirements a prepaid cardholder must meet to be eligible for the invitation, the company offers a few recommendations, she says. Cardholders should use the card for everyday expenses such as groceries or gas or for recurring bills like utilities and phone service, and reload the card consistently when the balance is low.
Of course, prepaid cardholders still need to qualify even if they receive an invitation to apply for the charge card.
"Receiving an application for a charge card doesn't guarantee approval," Gerstner says.
American Express will go through the same process to qualify a prepaid cardholder as it does for anyone applying for a credit or charge card. That includes considering a person's overall credit history. However, Gerstner points out that "Make Your Move" will give American Express a fuller picture of an applicant's financial history based on spending on their prepaid card.
The program is only available to holders of the American Express Prepaid Card. The issuer introduced another prepaid card, called the "Bluebird," which is sold only at Walmart and doesn't qualify for the "Make Your Move" program. The PASS from American Express, another prepaid card designed for teens, also doesn't qualify.
The issuer launched the program at the beginning of this year, around the same time that personal finance guru Suze Orman debuted her own prepaid card. At the time, Orman advertised that her card may someday help boost a cardholder's credit. Right now, no credit reporting bureau collects prepaid card data for a consumer's credit report.
Orman is working with TransUnion on an 18-month experiment to see if prepaid cards can be used to predict someone's credit worthiness. The holders of Orman's prepaid card are the lab guinea pigs (if they agree to it).
Prepaid cards have been slammed by many personal finance advisers and consumer advocates because many are laden with fees. (Orman, who spoke out against several prepaid cards, received a lashing after she unveiled hers, which features a $3 monthly fee, $2 ATM withdrawal and a $1 ATM balance inquiry fee, among others.)
However, the American Express prepaid card is considered one of the tamest in terms of fees. It has no annual, monthly, customer service, credit check, overdraft or transaction fees. It offers one free ATM withdrawal every month with a fee of $2 per withdrawal after that. It now offers the possibility of obtaining credit, for real.
What do you think of AmEx's new program? Is this a good path to credit?
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