How to Differentiate A Secured Credit Card from A Prepaid Card

A lot of credit consumers find it difficult to distinguish a secured credit card from the very popular prepaid card accounts offered by a majority of credit card issuers these days. After all, these two card programs possess similar features that make it hard to differentiate one from the other.

So, we have decided to discuss with our readers today several factors that differentiate these two card accounts. This way, we can help them identify which of these card programs will be more suitable to their needs, personal preferences, and most importantly, to their respective financial capabilities.

Factors that Differentiate Secured and Prepaid Credit Cards

1. Purpose of initial cash out. In secured credit card programs, consumers will be required to provide an initial deposit before they will be granted the cards they need. Such initial deposit serves two important functions. First, it serves as a security for the use of the card. In case the cardholder fails to keep up with the monthly charges, the card company can easily use the money deposited to settle all the unpaid card balances.

Second, the initial cash deposit determines the credit limit that will be imposed on the bad credit credit card account. If a consumer provides a deposit of $250, then the credit limit will most likely be around $250 or slightly higher.

With prepaid programs, consumers are required to deposit or “load” a certain sum of money onto their card accounts. They need to deposit cash onto their prepaid credit cards so that they will have ample funds that they can use in making purchases. Take note that unlike secured credit cardholders, prepaid cardholders are not provided with a credit line. Once the balance has run out, a prepaid cardholder must make a new deposit to continue using the card.

2. Ability to help consumers rebuild their credit reputation. Secured credit cards are very effective tools that consumers can use to regain their creditworthiness. As long as they responsibly manage their bad credit credit card accounts by making on time and complete payments of their charges, they can gradually push their credit scores up. And soon enough, they can successfully restore their financial health.

Meanwhile, not all prepaid credit cards can help consumers regain their credibility as borrowers. The reason for this is that, in such programs, cardholders are not really borrowing from and repaying funds to card companies and issuers. So these lenders will not have anything to report to credit bureaus regarding the way consumers manage their respective card accounts. Nevertheless, some prepaid credit card issuers today do offer credit reporting to the bureaus so these cards can be used for rebuilding bad credit.

We do hope that after reading this short article, you’ll see the difference between a secured credit card and a prepaid card account.

List of Secured Credit Cards

List of Prepaid Cards

About the Author
Tara Tiemann is a credit analyst for which has been a resource site for people who want to live debt free. If you are on a budget using prepaid debit cards,prepaid credit cards and prepaid cell phone service can save you big money!

About Liz Roberts

Liz Roberts is the new credit specialist for Go-Prepaid. If you are on a budget, we can get you discounted cell phone service from Sprint, Verizon and T-Mobile! NO CREDIT CHECK ! Using a prepaid services can save you a TON of money! Follow our blog to find out how!

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