Secured and prepaid credit cards are growing in popularity due to the increasing number of consumers looking for ways to rebuild their credit. Some people are in favor of them, while others try to avoid them. If you’re new to credit cards, you may have wondered how a prepaid card differs from a secured card, and how either kind can be used to build credit.

Secured Credit Cards

Secured credit cards are similar to regular credit cards, but there is less risk faced by the issuer. Secured credit cards require the cardholder to deposit money into an account, which is used to secure a line of credit. Typically, the cardholder needs to deposit enough money to cover 100-200% of the card’s credit limit. For example, a one thousand dollar deposit would result in a credit limit of five hundred to one thousand dollars.

Benefits of Secured Credit Cards

• Secured cardholders are responsible for timely payments, just like regular cardholders which helps in establishing good repayment habits and as a result a positive payment history.
• Secured Credit Cards can be used to rebuild damaged credit.
• They are easier to get as compared to traditional cards due to less risk factor attached.
• If a secured cardholder does default on a payment, the card issuer is protected; they can recover their loss by taking it out of the cardholder’s deposit account.

Drawbacks of Secured Credit Cards

• Customers may face the difficulty of coming up with a lump sum of cash to use as the deposit.
• Most people who require credit do not have cash in hand or else they wouldn’t need a credit card, and to get a Secured Credit Card, you need to have a deposit.

Prepaid Credit Cards

Prepaid credit cards are not actually credit cards at all. They may look like them, and can be used like them, but they are really more similar to debit cards. For prepaid cards, the cardholder is required to deposit money into an account and the prepaid card is then used to debit these funds when purchases are made. Thus the credit card issuer does not really offer any credit. Setup fees and small monthly fees usually apply.

Benefits of Prepaid Credit Cards

• Prepaid cards can be issued to minors. These cards are popular with parents of teenagers who want their kids to have access to a credit card, but one with a definite spending limit in place.
• There is no requirement to deposit a large, up-front amount to obtain a prepaid credit card. The prepaid card limit is up to the purchaser, who can deposit as much as they want the limit to be.
• Prepaid cards can also be used to establish or rebuild credit. Some issuers give out cards with the Visa or MasterCard logo on them, and these cards can be used anywhere those brands are accepted.
• The setup fees and monthly fees vary for every issuer, so its better to do some research to find the best prepaid card for you. It is possible to find great deals due to the increasing competition between lenders.

Difference between Secured and Prepaid Credit Cards

Secured and prepaid credit cards are similar in appearance and function, with only a few differences. These cards present an excellent opportunity to improve your situation if your credit is damaged or nonexistent. Also, prepaid cards can be a safe and convenient way to give money to your kids or to save their money. Likewise, if you have trouble limiting your own spending, you might want to try one of these cards.

Standard Credit Cards

In case your credit is average or better, and you don’t have any problem in controlling your spending and pay off your credit card balance each month, you might be better off going for a standard, unsecured credit card. This is because traditional credit cards have lower interest rate and less fees.

And the biggest advantage is that you won’t have to worry about putting up a big deposit and you’ll be able to go for loans and mortgage as you will have a good credit history. There are many cards available in the market from different lenders with different terms and conditions. All you have to do is to look properly, do some research and find a deal that meets all your requirements.

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