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Difference between Prepaid and Secured Credit Cards

Although prepaid cards look like and are used just like credit cards, they really are more like debit cards. Your credit line depends on how much money you transfer to the card, and it decreases each time you make a purchase. In other words, with a prepaid card, you don’t really have a line of credit, you can only spend the money you have in your account.

In contrast, with a secured card, you make a one-time security deposit in a bank account, and then make monthly payment on your card as you would on a regular credit card. The deposit is only drawn down if you default on your payments. In addition, if you maintain a regular payment history, the card issuer will often reward you by increasing your credit line without requiring you to add to your security deposit.

For those of us with 'less than perfect credit', a secured, unsecured or prepaid credit card may be the answer. Any of these cards will certainly give the flexibility of having a card to shop online and give peace of mind by not having to carry cash anymore. A few of these options will even help you rebuild or establish your credit. The key is to read the fine print and not apply for a card that is going to charge excessive fees.

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