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Suze and your credit score

By Janna Herron ·
Tuesday, January 31, 2012
Posted: 7 am ET

Have you been keeping up with the Suze Orman prepaid card debacle? If not, I'll fill you in.

Earlier this month, the guru of personal finance launched her very own prepaid card. It's the kind of card that you load up with your own money and swipe it like a debit or credit card at checkout. These cards are often marketed to consumers with no bank and charge a monthly fee.

Much of the brouhaha surrounds whether a money expert like Orman should be pushing a fee-laden card, especially after she has been critical of other celebrity-endorsed prepaid cards. The other point that has become confusing is how Suze's card affects your credit score.

Let me clear that up: It doesn't.

Orman is working with TransUnion, one of the three major credit reporting bureaus, in an experiment to determine if prepaid card information can be used to predict your credit worthiness. If you sign up for Suze's prepaid card, you can enroll in the aptly named "Credit Project."

If you decide to participate, then your prepaid transaction data will be sent anonymously to TransUnion, so its mathematicians can plug that info into various risk models to see if, poof, out comes a reliable prediction on credit risk. But that information will not be reported to any of your credit reports at the three major bureaus, the ones lenders pull to make a lending decision or the ones used to determine you FICO credit score.

The project is supposed to take 18 to 24 months, and there's no guarantee we'll see a credit scoring method that includes prepaid cards on the other end.

So, for the next year and half to two years, your activity on your prepaid card will not, I repeat, will not help or hurt your credit score. Your credit score won't even know Suze's card existed in your wallet.

If you're interested in building credit, Suze's card is not for you. For better or worse, the best way to build credit is to have credit.

Consider a secured credit or see if a family member will add you as an authorized user on their credit card account. By the time Suze's "Credit Project" sunsets, you will likely be able to qualify for your own credit card (if you keep up with your payments).

How do you feel about prepaid cards versus credit cards? Should prepaid cards be used in credit scores?

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January 31, 2012 at 5:54 pm

I feel that prepaid cards should "not" be used in determining a credit scores as it is "not" a form of credit. The money loaded on a prepaid card is your own money. The prepaid card functions similarly to a debit card and debit cards are not reflected in credit scores. You spend your own money with a debit or a prepaid card, not a creditors money therefore, it should "not" be included in determining a credit score.

January 31, 2012 at 3:09 pm

It's not all that uncommon not to have a bank account. If you've overdrawn one and not paid it off, you probably won't qualify for another, or if you have garnishments or liens against accounts you'd much rather have cash in hand than have it be subject to being withdrawn by a third party.

The question for me is the point of the debit card: many people don't use debit cards for credit purposes, they use it for convenience purposes. If you want to build credit, then surely a secured credit card is the way to go. I'd use this prepaid debit card only so as not have to carry around cash. If for a purpose other than that, there are better methods available.

January 31, 2012 at 10:27 am

The only usefulness I can see in a prepaid credit card is if you are broke and therefore do not have the savings required for a secured card and need something to use to buy things on-line or where cash is not practical. Otherwise, a secured card with a low or no fee is the way to build credit if you are unable to otherwise get a credit card.

If you are completely broke, you should do everything you can to save up $300 for a security deposit for a secured card.

January 31, 2012 at 8:53 am

I don't understand prepaid debit cards. does someone not have a bank account? I have to imagine the fees on the card would be similar to fees on a checking account if you can't get free checking.

If you have the money to buy what you are buying then why not use credit and pay the bill monthly? I have to imagine even a person with terrible credit could get a card with a really low limit and start working on building better credit/higher limits.