Secured or Pre-Paid Credit Cards – Which is Better?
Saturday, April 25th, 2009So you are trying to re-establish your credit and you have heard about secured and pre-paid credit cards. Which one is 
better and which one should you choose? First, let us examine what they are, and then we’ll know better which one might be right for you.
Both cards require you to open an account and make a deposit. But the difference comes in the purpose of the deposit. The secured credit card deposit acts as guarantee that the card company will get their money if you default. This is similar to collateral. When you make payments on time, you can be rewarded with a higher credit limit without having to add more money to the account.
The pre-paid card restricts any financial transactions only to the funds on hand in the account. There is no credit extended to the card holder (even though the word ‘credit’ is in the name of the card). Also, with this card there are no credit checks or interest charges. You will have to pay an annual fee along with setup, loading, check deposit, and transfer fees. Get the picture? The companies who offer these cards make their profits by charging you fees for almost every transaction involved with the card.
You must determine your needs and then get the card that best fits those needs. If it is instant cash that you need access to, then either one will suffice, but if you do not need to re-build your credit, then choose the prepaid credit card. These are perfect for young people and students who are just starting out and learning about how to use a credit card.
For those with a more serious pursuit, then a secured credit card might be better. If you do not mind playing by the credit card rules in order to build up your credit with the eye to one day being able to get back to a normal credit card, then this would be the route for you to take. As a matter of fact, some secured credit card issuers offer a plan to get you back onto a normal credit card after a certain amount of time in which you have been responsible in paying your monthly amounts.
It appears that the secured credit cards are superior because of their benefits for long term credit issues. With a pre-paid card, you would be better off just using a normal debit card for cash transactions. That way you do not have to pay all of those fees at every turn.
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