Prepaid Credit Cards Vs Secured Credit Cards - Which Is Right For You?
Aubrey Clark
January 19, 2009
Whether you have no credit, poor credit, or just plain bad credit you´re going to need a little help getting re-established in the credit arena. There are two ways to do that, with prepaid credit cards and secured credit cards.
Which ones right for you? That depends. We´re going to fill you in on the differences, which will make it easier for you to decide which is right for you.
Prepaid credit cards are also called prepaid debit cards and they were actually around before the secured credit cards. They are just what their name implied – prepaid. They are basically a debit card that is dressed up with the Visa or MasterCard logo. You put money on them, and then as you use it the balance is depleted.
You can add more funds at any time, and because everything is paid for as you, there are no interest rates or monthly payments associated with a prepaid credit card.
One of the big differences it that with the prepaid credit card there is no qualifying, no verifying employment, no verifying your address, and in fact, many do not even confirm that you are a legal resident in the country.
However, the prepaid credit card has more fees associated with it than a secured credit card. You are generally charged a fee for each transaction. There can also be fees for loading the card, transferring fees, annual fees, as well as a host of others. For all of this you do get anonymity.
The prepaid card is not really the best option if you are trying to build credit or repair credit, since they do not report to the credit bureaus so they will do nothing for your credit score.
If your credit is extremely poor or you are in bankruptcy, the prepaid credit card might be what you need. It will allow you to make credit card type transactions such as booking a flight or buying online, just as you would with a regular credit card.
Secured credit cards are the modern version of the prepaid credit cards. These are designed for those with bad credit or no credit, as they can help you to build or rebuild your credit. They look just like a regular credit card and need know the difference.
However, there is a price associated for building your credit and that is the interest rate you´ll pay. On most secure credit cards, it can be quite high. They can also have processing fees and annual fees associated with them.
You do not reload a secure credit card. Rather you put on deposit a specific amount of money and that or a portion of that becomes your credit card limit. Some banks allow your credit limit to be 100% of the deposit amount while it can be as little as 50% with some providers.
Like a regular credit card, your secured credit card will report to the credit bureau, making it a good choice for anyone that is hoping to build credit or improve their current credit score. You should not use up your credit card limit because this could actually reduce your credit score.
You see your credit card is actually a liability once you use over half of the available credit. It is seen as being dependent on your credit, so if this is your plan you´ll be hurting yourself.
You should try to be able to put at least a $1000 on deposit so that your credit limit shown at the credit bureau is decent. Then the best thing you can do is not actually use it at all.
There´s a misconception that you need to charge something and then pay it off to prove you are a good credit risk. For you see payments are not recorded at the credit bureau. What is reported is how old the account is and how often you´ve been delinquent.
There you have it. Now that you know, what both prepaid credit cards and secured credit cards have to offer you can decide which is right for you.
Which ones right for you? That depends. We´re going to fill you in on the differences, which will make it easier for you to decide which is right for you.
Prepaid credit cards are also called prepaid debit cards and they were actually around before the secured credit cards. They are just what their name implied – prepaid. They are basically a debit card that is dressed up with the Visa or MasterCard logo. You put money on them, and then as you use it the balance is depleted.
You can add more funds at any time, and because everything is paid for as you, there are no interest rates or monthly payments associated with a prepaid credit card.
One of the big differences it that with the prepaid credit card there is no qualifying, no verifying employment, no verifying your address, and in fact, many do not even confirm that you are a legal resident in the country.
However, the prepaid credit card has more fees associated with it than a secured credit card. You are generally charged a fee for each transaction. There can also be fees for loading the card, transferring fees, annual fees, as well as a host of others. For all of this you do get anonymity.
The prepaid card is not really the best option if you are trying to build credit or repair credit, since they do not report to the credit bureaus so they will do nothing for your credit score.
If your credit is extremely poor or you are in bankruptcy, the prepaid credit card might be what you need. It will allow you to make credit card type transactions such as booking a flight or buying online, just as you would with a regular credit card.
Secured credit cards are the modern version of the prepaid credit cards. These are designed for those with bad credit or no credit, as they can help you to build or rebuild your credit. They look just like a regular credit card and need know the difference.
However, there is a price associated for building your credit and that is the interest rate you´ll pay. On most secure credit cards, it can be quite high. They can also have processing fees and annual fees associated with them.
You do not reload a secure credit card. Rather you put on deposit a specific amount of money and that or a portion of that becomes your credit card limit. Some banks allow your credit limit to be 100% of the deposit amount while it can be as little as 50% with some providers.
Like a regular credit card, your secured credit card will report to the credit bureau, making it a good choice for anyone that is hoping to build credit or improve their current credit score. You should not use up your credit card limit because this could actually reduce your credit score.
You see your credit card is actually a liability once you use over half of the available credit. It is seen as being dependent on your credit, so if this is your plan you´ll be hurting yourself.
You should try to be able to put at least a $1000 on deposit so that your credit limit shown at the credit bureau is decent. Then the best thing you can do is not actually use it at all.
There´s a misconception that you need to charge something and then pay it off to prove you are a good credit risk. For you see payments are not recorded at the credit bureau. What is reported is how old the account is and how often you´ve been delinquent.
There you have it. Now that you know, what both prepaid credit cards and secured credit cards have to offer you can decide which is right for you.