Prepaid credit cards don't help build credit history

Dear JAG,

At this time prepaid credit cards are not reported to credit reporting agencies and so do not help build a credit history. However, Experian is looking very closely at prepaid cards and other credit-like services that could help emerging consumers establish credit histories.

In addition to prepaid cards, familiar credit-like services include utility payments and cellular telephone service, among others. Because the pattern of providing a service for future payment so closely resembles traditional credit, the services may be good indicators of credit risk.

Experian is studying whether or not that is true, and early indicators are that it is. However, there are significant challenges that must be overcome before businesses can report the information.

Among the most significant is that some state laws make it illegal to report utility payments. Additionally, any reporting business would have to meet the requirements of the Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit Transactions Act (FACT Act). Doing so can entail the purchase of new equipment, implementation of new technologies and perhaps hiring new staff, all of which can involve significant cost.

We believe those challenges can be overcome and that the costs are worthwhile, but it could be some time before there can be significant change. Until then, the only way to build a positive credit history is through traditional credit agreements.

Thanks for asking.