Everybody knows the difference between a debit and a credit card, but are you sure you know the difference between a secured credit card and a prepaid debit card?
Although everybody knows how to compare a credit card and a debit card, not many people can explain the difference between a secured credit card and a prepaid debit card.
So, here are a few tips to understand what you can do with these cards and how they compare.
What's a Secured Credit Card
This type of card allows you to borrow credit, but you need collateral for you to do so. This means that you need to make a deposit to the card issuer to use the card.
What's a Prepaid Debit Card
It's similar to a regular debit card because you don't borrow money whenever you use it. The trick is that with a prepaid debit card you load money onto the card beforehand. Then you use the available cash on the card.
The difference between both cards
There are three main differences between these two cards:
Credit Building Ability
If your aim is to build your credit history, then a secured credit card can definitely help! You may want to check if your card issuer reports the credit reporting agencies about your activity first.
On the other hand, the prepaid debit card won't help you with your credit history because you will only be using the money you deposit in your card to spend. That's why they are the ideal card to control your spending!
Regarding the initial deposit, when you open a secured credit card you need to deposit money as collateral before you use the card. This is a method used in case you can't repay your balance. Remember this doesn't mean that you won't be paying a bill every month!
In the case of the prepaid debit cards, you will be in charge of deciding the amount you want to initially put in your card. You will be able to reload it whenever you need more money in the account.
To apply for a secured credit card you will have to go to a bank or a credit card company. The institution will check your credit history during the opening process. Once approved, you will have to make the deposit. It usually is between $300-$500 and it will set your credit limit.
Prepaid credit cards can be purchased whether online or in many stores. You will only need to set the amount of cash you are going to preload and then you are set!
Fees and interest rates
Before you get a secured credit card you may want to check the annual and processing fees and interest rates. They will vary according to the card.
In the case of prepaid debit cards, you won't face any interest, but you may have high fees.