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Secure Credit Card vs. Prepaid Card

If your credit history is suffering and you need a credit card solution, you might consider a secure credit card or prepaid cards Both are often advertised by people with new or troubled debts, but which one is right for you? The answer depends on whether you need to build your debt or simply pay electronically.

Both secure credit cards and prepaid cards require you to deposit money before you can make purchases. Both can be used in many similar environments where credit cards can be used, e.g. grocery stores, gas pumps, etc. But, that is where the similarities end.

How Do Protected Credit Cards Work

A secure credit card requires you to make a security deposit against the credit limit before you can be approved by the card. Your security deposit is credited to a savings account or deposit certificate (CD) and stored there until your card is converted into unsecured credit until you default on a credit card (hopefully you will never do that).

Applying for a secure credit card is the same as applying for a standard credit card. Many card issuers are still checking your credit history, but there is a good chance you will be approved even if you have a bad credit history. When you use a secure credit card, you borrow money, just like with a standard credit card. Credit card purchases are against your revolving credit limit and you are required to make monthly payments on your credit card balance.

Paying your balance on a secure credit card frees up an available credit that you can reuse, just like with a regular credit card. Collateral deposit is simply held as collateral.

How Payment Cards Are Different

You can swipe a prepaid card to make purchases, but what happens at the back is slightly different. Although they are sometimes called prepaid credit cards, they are not really credit cards at all. Instead, prepaid cards are very similar to debit cards, linked to a test account.

There is no prepaid credit card limit. Your deposit is credited to the account as a source of income for your purchase. When you make a purchase using your prepaid card, instead of borrowing money from a credit card provider, the purchase amount is deducted from your card balance. Once you have used your deposit, you must reset the money before you can use it again.

Prepaid cards eliminate the need for monthly payments, which frees you from late payment penalties and credit damage. And since there is no credit check, you will not be rejected because of a bad credit history.

Secure credit cards and prepaid card

Payments vary between secure credit cards and prepaid cards. A secure credit card may have the usual cost of a credit card: application fee, annual fee, finance fee and late payment. While some of these fees are required, others can be avoided depending on how you use your credit card

Paid cards have completely different payments and, depending on the card you choose, some of them can be high. Open account fees and monthly maintenance fees are charged the first time you open your account and each month the account is open. You may have to pay a fee to reload the card, withdraw money from an ATM, or use a credit card. There are some cards that are completely free of charge. There are no interest rates or late fees for a prepaid card

What Is the Best Choice?

If you want to improve your credit score, a secure credit card is the best choice. Make sure you choose a secure credit card that reports to three major credit bureaus. For some credit card issuers, you may be eligible to convert your card into an unsecured credit card after a period of payment.

A prepaid card is a good way for someone who can open a test account, e.g. because of the bad history of banks, or just want to avoid banks. Most employers can direct your payroll on a prepaid card and some prepaid cards even allow you to send a few checks each month or sign up for an online payment. Prepaid cards offer an easy option for teens and students to receive a grant from their parents.

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