What Is The Difference Between Secured Credit Cards, Unsecured Credit Cards, And Prepaid Debit Cards?

There are three basic types of credit cards or debit cards out there for consumers - secured, unsecured, and prepaid debit. Knowing more about each type will help you determine the best one for you or for a specific situation or use.

With a secured credit card, your credit limit is based on a security deposit that you send to the credit card company and not on your credit standing. The security deposit you send to the credit card company is kept in a savings account and is used to establish your credit limit. For example, a $300 security deposit would give you a $300 credit limit. Unlike a prepaid debit card, secured cards report to the credit bureaus and the amount in the savings account is not used each time you make a purchase.

Unsecured credit cards include a wide spectrum of cards, from the best, low interest rate cards to credit cards for bad credit with the worst rates and fees. Unsecured cards are good if you want something like a secured card but cannot afford the deposit that a secured card requires.

If you have good credit, apply for the most competitive unsecured credit card offers, because these will have the lowest rates and fees (or no fees at all).

If you have high levels of debt and/or low credit scores, the unsecured cards you are eligible for may include any of the following fees: annual fee, account set-up fee, program fee, monthly participation fee, and/or an additional card fee per card (if applicable). These fees reduce the borrower's available credit until they are paid.

Although secured cards sometimes have fees similar to the fees for sub-prime unsecured cards, they are generally much less expensive to use than an unsecured account for someone with bad credit. You will likely save money in the long run by going with the secured card, for which the security deposit is refundable. The fees on the unsecured card are not refundable and you will have to pay interest on any initial charges you don't pay right away.

Also, if you keep a positive account history with the secured card, within a matter of months you may be able to convert the account to an unsecured card, at which time the card company will return your initial deposit plus interest.