Improve Your Credit Series: Secured Card vs. Prepaid CardBy Caitlin in Credit
If you’re currently trying to decide between applying for a secured credit card and loading up a prepaid debit card but don’t know what situations each card is best suited for then keep reading as we’ve compiled all the information you need to know to help you make the best choice for your financial situation.
Each card has its merits and can greatly help your financial situation, depending on your needs. Both secured credit cards and prepaid debit cards often appeal to those who have bad credit or no credit at all as they can act as tools to help improve your credit history or build one from scratch.
The most important thing you can do when making your decision is research. People often confuse secured credit cards and prepaid debit cards and choose the wrong one for their situation. Taking a moment to look into the uses, advantages and disadvantages of each card will guarantee that you make the right choice for you.
Secured Credit Cards
Secured credit cards can be used just like regular credit cards, to make purchases, pay bills and improve your credit score. The major difference is that a secured credit requires a deposit that acts as collateral for the credit card company. The limit of a secured credit card is significantly lower than the limit of a regular credit card, but if you’re trying to improve your credit score and curb your spending habits a lower limit is exactly what you need. Here’s how it works:
- Choose a secured credit card that best suits your current financial situation. Because you’ll need to make a deposit secured credit cards as often easier to get.
- Make sure that the company you choose reports your credit activity to the two major credit bureaus, this is the only way you’ll be able to improve you credit history.
- Once you’re approved you’ll need to make a deposit, typically between $200 and $500.
- Your credit limit will be the same as your deposit, minus all fees associated with your account.
- Now use your secured credit card to make regular and responsible purchases.
- Keep your balance around 10% of your total limit; this will help with improving your credit score.
- Finally, always pay off your balance in full and on time every single month.
With some hard work and commitment you should be able to see an improvement in your credit score within as little as 6 months, but of course it all depends on the state of your credit when you started. Don’t be discouraged if it takes up to a year to see change, in the end it will be worth it.
Prepaid Debit Cards
The main reason people tend to confuse prepaid debit cards with secured credit cards is that they both require a type of deposit. But the main difference is that with a prepaid debit card you’ll actually be spending the money you load on it, with a secured credit card you’re using credit to purchase things just like a regular credit card. Here’s how it works.
- Anyone can get a prepaid debit card; you simply need the cash to loan value onto the card.
- The amount of cash you add to your debit card is the amount you have to spend, minus any fees that might be associated with the card you chose.
- You can then use your prepaid debit card to make purchases or pay bills, once you’ve spend your full balance you’ll have to add more money to continue using it.
- Because your prepaid card is not a credit card there’s no monthly payment or interest rate associated with it, you’re only dealing with the money you actually have.
The most important difference between a prepaid debit card and a secured credit card is that your payments toward your prepaid card won’t be reported to the credit bureaus therefore a prepaid debit card doesn’t help to improve or build your credit.
How to Choose
Choosing between a prepaid debit card and a secured credit card completely depends on your financial situation and what you want to achieve. If you’re looking to improve your credit then a secured credit card is your best bet. It’s also a good idea to consider your financial future before you make your final choice. Even if you feel like you don’t need to improve your credit it might still be a good idea to choose a secured credit card, there’s always room for improvement when it comes to credit. Having a credit history and a good credit score are two things that everyone needs, so it’s definitely in your best interest to consider how a secured credit card can help you achieve them.
More from the improve your credit series:
- How fast does a secured credit card work?
- What is a secured credit card?
- Get started on your secured credit card application here.