Comparing Secured Credit Cards and Prepaid Debit Cards

Armed with new technology and faced with a financial recession and a landscape moving towards plastic and away from print money, banks have begun creating specific and specialized products to meet any consumer’s goals or needs. Secured credit cards and prepaid debit cards offer alternatives to typical credit cards for people who have poor credit. Initially, secured credit cards and prepaid debit cards might seem similar, if not synonymous. However, their differences are essential to choosing the right option for you.

Secured Credit Cards
If you have recently filed for bankruptcy, or have amassed late payments that have caused your credit score to drop significantly, a secured credit card is one of the first steps to rebuilding your credit. Debit cards, on the other hand, don’t use credit, so they will have no bearing on your credit rating. By making consistent and timely payments on your secured credit card you will begin to establish positive credit lines to help improve your credit score.

Unlike a regular credit card where you pay the balance off at the end of the pay-period, a secured card requires you to put down an initial security deposit as collateral. The deposit can range from $200 and up. The amount of your security deposit will also be the limit for your card. If you happen to miss a payment the amount due will be withdrawn from your security deposit and your credit score will not be negatively affected.

Secured Credit cards come with high interest rates, and once you reach the pre-established limit you will be unable to use the card until the following pay-period. Once you have established good standing with the card company you will be able to increase the limit on the card.

Secured credit cards are reported to credit bureaus exactly the same way as normal credit cards. So any activity on it is sure to affect your credit score. If you’re looking to improve your credit score, this is the way to go.

Prepaid Debit Cards
A prepaid debit card will have absolutely no bearing on your credit score. A debit card is essentially an ATM card that you can also use to make purchases. When you make a purchase with your debit card it will automatically and instantly withdraw from the account. There are no interest rates or monthly payments involved.

“Prepaid” obviously means that you load money into the account first and then withdraw from it as you make purchases. A prepaid debit card will be accepted anywhere that regular credit cards are.

Since prepaid debit cards don’t involve credit issuers are not concerned with whom they extend cards to. Most don’t ask for employment, credit history or even address information.  This is ideal for people who are not regularly employed or that don’t have a permanent address.

Obviously the bank has to make money somehow, and they do so in the form of fees: transaction fees, activation fees, transfer fees, over-the-limit fees, among others.

If you have been denied by credit card companies for one reason or another, rest assured that there is a plastic option available that will fit your needs. Whether you need to rebuild your credit, or if you’d rather remain anonymous, a secured credit card or prepaid debit card can give you the payment flexibility you seek without the dangers or qualifications of credit cards.