Improve Your Credit Series: Secured Card vs. Prepaid Card

Improve Your Credit Series: Secured Card vs. Prepaid Card

Written by Caitlin Wood
Last Updated April 21, 2021

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:


Rating of 4/5 based on 2 votes.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Make Smarter Borrowing Decisions

Whether you have good credit or poor credit, building financial awareness is the best way to save. Find tips, guides and tools to make better financial decisions.

Save With Loans Canada

Special Offers

50 Free Trades Offer

50 Free Trades Offer
Ends August 31st, 2022

Almost $500 in commission-free trades. Code “50TRADESFREE”. Conditions apply.

View Offer
Borrow Today, Don’t Pay Till July

Borrow Today, Don’t Pay Till July
Limited Time

Borrow $500-$50,000 from Fairstone by May 31 and don’t pay until July.

View Offer
Build Credit With Refresh

Build Credit With Refresh
Popular

Build credit while spending money with the Refresh Financial VISA card.

View Offer
Build Credit For $7/Month

Build Credit For $7/Month
Popular

With KOHO’s prepaid card you can build a better credit score for just $7/month.

View Offer
Industry Spotlight

What's happening with Canada's credit industry?

addy ⎯ Making Real Estate Accessible To All Canadians

addy ⎯ Making Real Estate Accessible To All Canadians

Check out our interview with addy; a platform that allows Canadians to invest in different properties across Canada with as little as $1.

Read Post
Locator
Find The Best Rate
In Your Region
OR
Best Personal Loan Provider by Greedy Rates
Icon

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Keep Track Of Your Credit Score

Subscribe with Credit Verify to monitor your credit rating and get your free credit score.