How is a Secured Credit Card different from Prepaid Credit Card?

Those with a bad credit history and is looking for a credit card solution, can opt for both Secured Credit Card and Prepaid Credit Cards. But know in details about the features of both these cards before applying for one. Determine what features are most important that suits your financial situation and budget and measure them against the costs associated with each offer. Both Secured Credit Card and Prepaid Credit Cards require you to deposit amounts. Only after the amount is successfully deposited you are allowed to use these cards. Both the cards can be used to make purchases like regular credit cards. But here ends its similarities. The dissimilarities between a secured credit card and prepaid credit card are as follows-

Secured Credit Cards requires you to make a one-time security deposit against the credit limit before you get approval to use the card. You must make monthly payments on your card as you would on a regular credit card. The spending you make with your card goes against your revolving credit limit. Your deposited amount is placed in a saving account until your card is converted to an unsecured credit until you default on your payments. If you maintain regularity in your payments, the card issuer will often recompense you credit line without requiring you to add to your security deposit.
On the other hand Prepaid Credit Cards though are called credit cards, but they really are more like debit cards. There is no credit limit and your credit line depends on how much money you have transferred to the card, and it decreases each time you make a purchase. Once you spend the money from the deposited amount, you must redeposit money before you can spend again.
The fee structure also varies between secured credit cards and prepaid credit cards. A secured credit card charges fees typical of a credit card. You have to pay for application fee, finance charge, annual fee and late fee. If you use your secured credit card wisely, you will not be required to pay some of these fees. While prepaid credit cards have entirely different fee structure, depending on the card you choose. At the very starting you have to pay the activation fees and monthly maintenance fees. You may also have to pay a small amount while reloading money in your card or while withdrawing money from an ATM. Many prepaid cards are completely free. Using prepaid credit cards will never charge you interest and late fee.
If you want to improve your credit score, a secured credit card is the best option. Choose a secured card that reports to the major credit bureaus. If you make regular payments your secured card will be converted to an unsecured one after 12 months or less. While a prepaid credit card is a best option for those who can’t get a checking account or want to avoid banks. This card is a good choice for teenagers and students who get an allowance from parents.
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