Choosing between a prepaid credit card and a secured credit card

There are many reasons why some people are turned away from conventional credit cards, they include; the risk of getting into debt, fear of ID theft or simply having a credit rating that makes it impossible to get one at reasonable rates.

For these people the alternative is either prepaid credit cards or secured credit cards, but which one is better depends on what the consumer’s goal is for using the card; convenience or building on their credit rating.

Understanding each card
Prepaid cards are a type of card that functions just like a normal credit card but the money must be deposited onto the card before you can use it to purchase goods, in a sense they’re just like gift vouchers, the application process is very easy with most applicants getting approved.

A secured credit card is one where the money you spend is secured against a deposit that you hold in an account, e.g. a savings account. Secured credit cards are more closely related to traditional credit or debit cards; you become an account holder with a bank or building society.

Differences and advantages of each card
A prepaid card carries very little personal details therefore does not have the same level of risk to identity theft, in case you loose it, you’d only loose the money on the card. A secured card on the other hand, has all the risks of a credit or debit card; if stolen the thief may run up debts under your name.

Secured credit cards are good for establishing a credit rating; if you are new to credit, you might not be able to get a credit card at a normal interest rate because of a lack of a good credit rating, a secured credit card can be a cheaper alternative to a bad credit card, which usually have a very high interest rates. Prepaid cards do not have any effect, good or bad, on your credit rating.