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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