Credit builder vs prepaid card: Understanding the difference

If you have low credit or no credit history and you’re looking for a financial solution, you’ve probably heard of credit builders and prepaid cards.

In this guide, we'll break down the difference between standard and credit-building prepaid cards, the different features they offer, and who they're for.

Understanding prepaid cards and credit builders

Read on for a breakdown of these two financial solutions.

Prepaid cards

Prepaid cards are payment cards that you load with money before using them. They work similarly to debit cards, allowing you to make payments, set up direct debits, transfer money, and withdraw cash.

The key difference to traditional accounts is they are not linked to a bank account or line of credit. This means they're easier to get for people who might have difficulties opening up a normal bank account or are not eligible for things like credit cards.

You can load funds onto prepaid cards using a few methods… You can have your salary paid into them, make direct deposits, set up electronic transfers, and pay cash in at designated retailers.

Once the card has money loaded, you can typically use the card to spend anywhere that accepts regular major cards (Visa, Mastercard, American Express, etc.). You can also withdraw cash at ATMs and transfer money to bank accounts just like with a regular card.

Prepaid cards are ideal for managing spending limits. When using a prepaid card you are limited by the amount of money loaded onto it, and many providers have fully-featured banking apps to help manage your finances.

Generally, there are fees associated with prepaid cards, including small monthly maintenance fees, ATM withdrawal fees, and bank transfer fees. This is offset by the fact that many prepaid cards offer much better features than basic accounts, like cashback and other bonuses.

Prepaid cards also have no impact on your credit rating. Spending activity isn't typically reported to the three main credit reference agencies, meaning prepaid cards cannot affect your credit score either way.

For a full rundown on how credit scores work, check out our guide.

Credit builders

Credit builder prepaid cards work similarly to prepaid cards but instead have a small monthly premium that is reported to the main CRAs. This helps to show them you are financially responsible and can make regular payments. In turn, you build your credit score.

Credit builder prepaid cards also don't require hard credit checks to open, making them an accessible way for almost anybody to start building credit.

They also commonly have features built in so if you can't make the monthly payment, you'll simply be downgraded to a standard prepaid card.

Similar to the best prepaid cards, credit score builder cards also tend to come with much more rewards and features than basic accounts. Some (like Pockit, which we explore later) even come with access to personal credit and insurance.

Who is a credit builder for?

To put it simply, credit-building prepaid cards are ideal for anybody looking into how to build a credit score.

By regularly reporting your payments, they offer a reliable way to show CRAs that you can reliably make regular payments. They also come equipped with the same functionality as other prepaid cards so you can still use them to make payments, withdraw cash, and transfer money.

With Pockit's Fast Track to Credit, you can set up your account and have a card on the way in just 3 minutes. You'll also gain access to personal credit in as little as 3 months, allowing you to lend up to £500 at 0% interest with no credit checks.

It comes with all the same functionality as our prepaid cards and just requires a small monthly payment of £9.99. We then report this monthly payment to all the main CRAs, allowing you to start building credit fast.

You'll also have access to amazing benefits like:

Cashback Rewards

• Get up to 15% cashback and discounts with selected high-street brands.
• Get 2.5% back on all other spending & Direct Debits on the first £100 spent.
• Save up to £264 on mobile, TV & broadband bills.

Purchase Protection

• Protect your eligible purchases of up to £1,000 in case of damage, theft or returns.
• Refund up to £1,500 of unused tickets if eligible.
• Extend warranty by 12 months for brown goods.

Have a look at our other article for a complete overview of everything you need to know about credit builders to learn more.

Who is a prepaid card for?

Prepaid cards are ideal if you need a simple way to perform all the key functions of a bank account but don’t need to build your credit rating. They'll let you pay money in, make payments, set up direct debits, and transfer money.

Prepaid cards are ideal if your situation might make it difficult to open up a standard bank account. They're perfect if you’re travelling or trying to budget and also a great alternative to the 'basic' accounts offered by high street banks that typically feature few if any rewards or extras like cashback and other benefits.

Prepaid cards typically come in a few different tiers of features, ranging from no monthly fee to low monthly fees that offer better benefits. With some providers like Pockit, you can also upgrade the card to a credit builder when you're ready, or jump straight in with a credit-builder account.

Here's an overview of the options from Pockit:

For more information or to discuss which prepaid card is best for you, get in touch. We'll be happy to guide you in the right direction.

FAQs

What is a prepaid card?

A Prepaid card is a type of debit card that isn't attached to a traditional bank account. They are simple to use and allow you to load the card and then make purchases or withdrawals up to the amount loaded.

Do I need a good credit score for a credit builder card?

No, Pockit’s credit builder prepaid cards are ideal if you have a poor credit score or don't have a credit history. For instance, if you've newly arrived in the UK.

Can you use credit builders and prepaid cards online?

Yes. You can make payments anywhere with Pockit’s credit builder and prepaid card. You can also access the online app to see real-time spending alerts, set up payments, and more.