Secured Credit Card vs. Prepaid Card

If your credit history is suffering and you’re looking for a credit card solution, consider a secure credit card or prepaid cards . Both are often advertised for anyone who has new or bad credit, but which one is right for you? The answer depends on whether you need to increase your balance or simply pay electronically.

Both secured credit cards and prepaid cards require you to deposit funds before you can start shopping. Both can be used in most places where credit cards can be used, for example. Grocery stores, gas stations, etc. But that’s where the similarities end.

How Secured Credit Cards Work

With a secure credit card, you must make a security deposit towards the credit limit before you can be approved for the card. Your deposit is held in a savings account or certificate of deposit (CD) and held there until your card is converted to unsecured credit, until you default your credit card (hopefully never).

A secure credit card is the same as applying for a regular credit card. Many card issuers still check your credit history, but you are more likely to be approved even if you have a bad credit history. When you use a secure credit card, you are borrowing money, just as you would with a regular credit card. Purchases made with a secured credit card are against your revolving credit limit and you must make regular monthly payments to your credit card balance. 

Withdrawing your balance on a secure credit card frees up available funds that you can reuse, just like a regular credit card. The deposit is held as a guarantee only.

How prepaid cards are different

You can swipe a prepaid card to make purchases, but what happens behind the scenes is a little different. Although they are sometimes called prepaid credit cards, they are not credit cards. Instead, prepaid cards are more like debit cards linked to a checking account.

There is no credit limit for a prepaid card. Your deposit is deposited into an account as a source of funding for your purchases. When you make purchases with your prepaid card, the purchase amount is deducted from your card balance instead of borrowing money from your card issuer. Once you’ve spent up to your deposit, you’ll need to deposit money again before you can spend again.

Eliminate the need for monthly payments, relieving you of fines and credit damage. And since there is no credit check, you will not be refused because of a bad credit history.


Fees vary between secured credit cards and prepaid cards. A secure credit card may have typical credit card fees: application fee, annual fee, financing fee, and late fee. While some of these fees are required, others can be avoided depending on how you use your credit card.

Cards have very different rates, and depending on the card you choose, some of them can be high. Activation fees and monthly maintenance fees are charged when you first open your account and each month the account is opened. You may have to pay a fee to load money on the card, withdraw cash from an ATM, or use bill payment. There are some prepaid cards that are completely free. With a prepaid card, there are no interest or late fees.3Which

Is the best option?

If you want to improve your credit score, a secure credit card is your best bet. Be sure to choose a secure credit card that reports to the big three credit bureaus. Some credit card issuers may allow you to convert your card to an unsecured credit card after a period of timely payments.4

A prepaid card is the ideal option for those who cannot open a checking account, for example. B. due to a bad banking history, or simply want to avoid banks. Many employers can deposit your salary directly to a prepaid card, and some prepaid cards even allow you to send a few checks a month or sign up for bill payment online. Prepaid cards are also a convenient way for youth and students to receive an allowance from their parents.

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