Secured And Prepaid Credit Cards
Author: Debbie Dragon

With so many consumers looking for ways to rebuild their
credit, secured and prepaid credit cards are growing in
popularity. Some people swear by them, and others try to avoid
them. If you're new to credit cards, you may have wondered how a
prepaid card differs from a secured card, and how either kind
can be used to build credit.

Secured credit cards work much like regular credit cards, but
with less risk to the card issuer. The cardholder deposits money
into an account, which is used to secure a line of credit.
Typically, the cardholder needs to deposit enough money to cover
100-200% of the card's credit limit. For example, a one thousand
dollar deposit would result in a credit limit of five hundred to
one thousand dollars.

Secured cardholders are responsible for timely payments, just
like regular cardholders. This is a good thing, because it
teaches good repayment habits and helps to establish a positive
payment history – a very important part of rebuilding damaged
credit. If a secured cardholder does default on a payment, the
card issuer is protected; they can recover their loss by taking
it out of the cardholder's deposit account.

Critics of secured credit cards point out the difficulty of
coming up with a lump sum of cash to use as the deposit, and
they do have a point; if cash is that tight, perhaps it isn't
the best time to get a credit card of any type.

By contrast, prepaid credit cards are not actually credit cards
at all. They look like them, and can be used like them, but they
are really more similar to debit cards. The cardholder deposits
money into an account and the prepaid card is then used to draw
on these funds. No actual credit is offered by the card issuer.
Setup fees and small monthly fees usually apply.

Prepaid cards can be issued to minors. These cards are popular
with parents of teenagers who want their kids to have access to
a credit card, but one with a definite spending limit in place.
No large, up-front deposits are required to obtain a prepaid
credit card. The prepaid card limit is up to the purchaser, who
can load the card's account with an amount of their choosing.

Prepaid cards can also be used to establish or rebuild credit.
Some issuers give out cards with the Visa or MasterCard logo on
them, and these cards can be used anywhere those brands are
accepted. Setup fees and monthly fees vary by issuer, so do a
bit of research to find the best prepaid card for you. You will
find that your options are plentiful, and competition between
issuers is steep – which is good news for potential cardholders.


Secured and prepaid credit cards are similar in form and
function, with a few notable differences. If your credit is
damaged or nonexistent, these cards present an opportunity to
improve your situation. If you have a teen or young adult with
an allowance, but don't want to worry with cash or checks,
prepaid cards can be a safe and convenient way to store their
money. Likewise, if you have trouble limiting your own spending,
you might want to try one of these cards.

But if your credit is average or better, and you're able to
control your spending and pay off your credit card balance each
month, you might be better off going for a standard, unsecured
credit card. The interest rate and fees will almost certainly be
lower, and you won't have to worry about putting up a big
deposit. There are many available cards to meet many needs. A
little research should turn up the card that best meets yours.


About The Author: This article has been provided courtesy of
Creditor Web, http://www.creditorweb.com