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Comparing secured credit cards with prepaid debit cards

January 15th 2013

Both secured credit cards and prepaid debit cards can be used at the checkout stand with your local retailer or grocery store. Both can be used to make purchases or to pay bills online.
That’s where the similarities end.
Reasons to choose between a secured and prepaid card
A secured credit card requires you to make a security deposit in order to start the account. The amount of money you will need to open a secured credit card can vary. Some secured cards can be opened for as little as a few hundred dollars, all the way up to several thousand dollars.

  • A prepaid credit card requires you to “load” the card with your money before you can begin to use it. There are some prepaid cards that allow you to have money auto deposited to the card, or you can load the card using cash.
  • A secured credit card will be billed monthly similar to an unsecured credit card. You must make the required monthly payment on time or late fees will be assessed. If you do not make a payment on time, the amount due will be deducted from the amount you have on deposit that secured the account when you opened it. Many of the cards available charge a monthly fee for the account. The best secured credit cards only have an annual fee. Look for a secured card with a low annual fee only.
  • A prepaid debit card may charge a “load” fee (for adding money to your card), a transaction fee every time you use the card, ATM fees for cash withdrawals, and monthly maintenance fees. Some prepaid cards do not charge you when you have direct deposits made to the card. There are no interest fees or late payment fees with prepaid cards.
  • With a prepaid debit card, you are using your own money loaded to the account. When you spend using the card, the balance decreases until the money is used up. This type of account does not report to credit reporting bureaus like Equifax, Experian and TransUnion. There are no credit score benefits to be gained from prepaid debit cards.
  • With a secured credit card, you use the card just like a typical unsecured card. You are establishing a monthly payment history. While you did establish the account with a security deposit, that money is not touched unless you fail to make a payment. There are many secured credit card vendors available to choose from. Be sure to select one that does send information about your account to the major credit reporting agencies if you are trying to establish, or improve your credit history. Just be sure to make your monthly payments with your secured credit card on time, otherwise you will defeat the purpose of using one to rebuild credit. You may want to take out more than one secured credit card and use it for small purchases each month followed by paying it in full each time you receive the bill.

There are different reasons why you may choose between a secured and prepaid card:

Compare the fees and costs of using a secured credit card and a prepaid debit card

The prepaid debit and secured card markets have become better developed in the last couple of years. As the market increased with more people using these types of cards, more competitive pricing has emerged.

You do have to be careful to shop for the right card, as there are many that still charge high fees.

Which card can help you establish or improve your credit rating?

Secured card helps you establish your credit gradually. Make sure you see it carefully. Use it to restore your credit.

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