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The prepaid credit card is a stored-value card which is usually issued in the name of an account holder whereas secured credit card is a type of credit card which is backed by collateral, such as savings accounts, on the credit available with the card. Fix money is deposited in that savings account and the limit of secured credit card will be based on the deposited amount and credit history of the individual. Consumers who have a poor credit history or have no credit usually consider taking secured or prepaid credit cards. An additional benefit of taking these types of credit card is the purchase protection they get from the logo on a credit card of credit card companies. You are required to deposit money in both these cards before you can use them. However, you should consult Your Personal Financial Mentor about the type of credit card which is most beneficial for you.

The Main Difference

As discussed earlier, it is required to deposit money beforehand in the secured credit card, as collateral, to define a credit limit before getting approval for a card. This amount works as a security deposit and is placed in a certificate of deposit (CD) or savings accounts and is kept there as long as you do not convert your card into an unsecured credit card or until you default. This security deposit is required because of the risky individual. Your purchases with the secured credit card go against a revolving credit limit and when you pay back your balance; your available balance goes up just like a regular card.

Whereas, prepaid credit cards are different. It is suitable for those who do not feel comfortable with the responsibility of maintaining a regular traditional credit card. A certain amount should be deposited into a card in order to make purchases, so there is no lending activity involved in using these prepaid credit cards. It works as your cash carrying tools and the amount you deposit defines your credit limit.

Fees of Prepaid and Secured Credit Cards

Fees vary between these two credit cards. Prepaid cards have a monthly maintenance fee and activation fee which is charged the first time you open an account and in every month the account is opened. You may also have to pay a fee when you are reloading a card, paying bills or withdrawing money from ATM. Moreover, there are no interest charges or late fees in using a prepaid credit card and some prepaid cards are completely free. On the other hand, secured credit cards have an entirely different fee structure and involve annual fee, application fee, late fee and finance charges such as an interest charge. Some of these fees are compulsory while you can avoid others if you use your card efficiently.

Consumer’s Requirement

If a consumer is looking forward to improve his credit score, then using a secured credit card is a safe and best option. He has to make sure that the card he use, should report to the three major credit bureaus and some credit card companies covert a secured credit card into an unsecured one if he makes regular and timely payment for at least 12 to 18 months.

Prepaid credit is suitable for those who avoid banks and cannot get a checking account. You can benefit from these cards by asking your employer to directly deposit your paycheck into this card. You can also send a few checks every month or enroll yourself in an online bill payment. It is good for students as well who receive allowances from their parents. They can carry a prepaid card with them without keeping any cash in their pocket.

Categories: Credit Cards