How Prepaid Credit Cards and Secured Credit Cards Work

Secured and prepaid credit cards are increasing in popularity simply because more and more people are in dire need to re-establish better credit history. Oftentimes, credit cards secured are being mistaken for prepaid cards and they could not be any more different from each other. In this article, we will dissect and discuss how each card work and how you can use them to improve your credit history.

Secured

Secured cards are very similar to an average card. However, it has one feature that no traditional card offers; it poses no risk to the card company at all. It works when a cardholder deposit money in his account. This money will turn into a line of credit. Normally, the cardholder must deposit enough money to cover 100% or even 200% of the card’s credit line. All credit cards secured holders are expected to pay their balance on time. This is a good thing because it trains cardholders to have better payment habits and help them establish better credit history. If the cardholder defaults on payment, the card company can simply recover their loss by taking money from that person’s account.

Prepaid

Contrary to what many believe, prepaid cards are not credit cards at all. While they look and can be used like a typical card, it is in fact, more akin to debit cards. It works when cardholder deposit money in his account and then this money will be used to withdraw funds. There is absolutely no credit provided by the card company at all. These cards usually come with set up and small monthly fees once they start using it.

The great thing about prepaid credit cards is that it is so safe that even minors can use it. This is the perfect tools for parents who want to teach their kids how to use cards for the first time without fearing of their money being overspent. Best of all, there is no significant up-front deposit required to get this card. The limit of prepaid cards will depend entirely to the account holder.

Secured and prepaid may be similar in both form and function but there are certain differences in each card. However, the bottom line is, both can be a great tool for individuals who either have damaged or non-existing credit history. If you have kids and you want to train then how to have excellent spending habits, these are the perfect tool to have! Best of all, you do not have to keep writing cheques or send allowances to your kids.

Source by Lynette Hill