Sign up for your free Credit.com account    Sign Up Now
From the Experts at Credit.com

What’s the Difference Between a Prepaid Card and a Secured Card

by Lucy Lazarony

Difference Between Prepaid Credit Card and Secured Credit Card

Trying to decide between a secured card and a prepaid card?

Both types of cards may appeal to you if you have bad, little, or no credit. But there are some important differences to consider.

A secured card is a good card for building credit and can be used just like any other credit card.

A prepaid debit card is not tied to a checking account and is an alternative to check-cashing services and money orders for people living without bank accounts. You can use a prepaid debit card to pay bills, but doing so won’t help your credit.

Here is a look at each card option. Each requires you to pay in advance before using the card.

Secured Credit Cards

Making on-time payments with a secured card will help you build credit.

With a secured card, you secure a line of credit by making a deposit into a savings account. The credit limit on a secured card is the amount of the deposit, less any fees charged by the card issuer.

Let’s say you make a $250 deposit on a secured card with an annual fee of $25, your credit limit would be $225.

It’s a good idea to choose a secured card that reports to all three national credit reporting agencies. Establish a good payment history by making small purchases on a secured card and paying your account on time each month. And keep your balances low. Try to use no more than 10 to 15 percent of your credit line.

After a year or so of on-time payments and only low or no balances, you may build enough credit to qualify for an unsecured credit card.

Your can track your progress by monitoring your credit scores and credit profile using Credit.com’s free Credit Report Card.

Prepaid Debit Cards

With a prepaid debit card, you load value on the card by cash, check, wire transfer, online transfer or direct deposit. The amount of money you have to spend on the card is the amount of money that you load, less any fees charged by the card issuer.

It’s important to note that prepaid debit cards do not report your payment activities to the major credit reporting agencies, which is why these cards do not help you build credit.

Prepaid cards also tend to contain many fees. However, you may be able to waive a card’s monthly fee by maintaining a minimum balance or having a payroll or government check deposited on your card each month.

Either way, it’s important to read the fine print and calculate how much you’ll be paying in fees each month on a prepaid debit card. By shopping carefully and comparing different cards, you can find one that carries fewer fees and meets your spending needs.



Sign up for your free Credit.com account. Learn More
X

Start Maximizing Your Credit Today

Credit CardsGet a FREE personalized credit check-up today.

Get Started – It’s Free!