Both a prepaid and secured credit card are ideal for people who have had trouble with getting credit in the past and are struggling with a poor rating. However, as both require a payment to be made before using them; both cards have their differences as well as advantages and disadvantages. Knowing what these are will help in making an easy decision when choosing which option is better for you. As both are suitable if you need finances quite quickly, there are still pros and cons.
Secured Credit Card
As the name suggests, a secured credit card requires the lender to take a deposit to hold against the card as security. The deposit is placed in a savings account and is kept there until the card becomes an unsecured card. Which is usually happens when the lender is satisfied with payment management; the deposit is then given back to you. The deposit provides the lender with security that you will commit to your contractual obligations with regard to payments. When you use the card, the cost of the transaction is not taken from the deposit, but acts as a standard credit card with the purchase going against the credit limit. Monthly payments will free up capital on the card, just like a regular credit card.
For people who are looking to repair a damaged credit score, or are just starting to build a credit history, the secured credit card is ideal, you also do not need to have a good credit score to get one. For risky borrowers, it helps enhance the commitment to pay off their debt on the card with the monthly payments to increase their chances of getting their deposit back.
A prepaid card does not require for the lender to take any deposit from you and like the secured card, you do not need an excellent credit score to get one. The main difference with this type of card is that you need to load the card with your own funds. Much like a gift card, the available balance will shrink to zero as and when you use it. This card is available from any retail store and companies such as Western Union or even a petrol station. It does not require an application process, as with the secured card, and are a widely accepted by many merchants. The main disadvantage to the prepaid card is that it does not help improve your credit limit; however, there are no monthly payments to be made. While there isn’t a lengthy application to be completed, or a credit check, you may be charged activation and monthly maintenance fees.
You need to consider your financial situation before deciding which card you should apply for. For those who want to rebuild a damage credit score, the secured card is ideal. They are also beneficial in terms of fraud protection as well and with other safety precautions put in place. Prepaid cards are more suitable for those who choose to avoid banking, or as a gift to replace a standard gift card. In any event, consider your options and shop around to find the best rates and deals when applying for a credit card. Financial advisors can help present a range of financial products that can help those in need of capital or those struggling with their credit score and history.
Bill Turner is a writer and entrepreneur. He likes to walk his 2 Yorkies along the beachfront and hike mountains in the winter.