Whether you're standing at a store counter or shopping online, paying with plastic can be more convenient. But depending on your credit history, credit cards might be hard to get. Fortunately, you've got options. Ever heard of a secured card or a prepaid card? They may seem similar, but check out the details and you'll see they're very different.
Think of prepaid cards like gift cards. Sometimes called "reloadable" cards, they require you to pay money upfront, which then goes on the card and can be used by swiping the card to make purchases (in place of cash or a check). Once the money on the card is used up, you'll have to refill it.
Here are a few things to consider about prepaid cards:
- Since they don't report to the major credit bureaus, prepaid cards can't help you build credit.
- If a prepaid card is lost or stolen, you might not be protected.
- Some prepaid cards have a lot of fees that can quickly eat away at the money you've loaded onto the card.
- Prepaid cards sometimes have an expiration date—you'll want to check the terms of your card.
A secured credit card requires you to make a security deposit in order to "secure" your line of credit—the total amount you can spend with the card. While you may be able to borrow more than you put down, your deposit acts as a promise to the bank that you'll pay back everything you spend.
When it comes to secured cards, this stuff matters:
- A secured card reports to the major credit bureaus just like a traditional (unsecured) credit card. So if you're just starting out, using one responsibly may help you build credit.
- Secured cards may also help you rebuild your credit if you have a less-than-perfect credit history (from not paying bills on time, for instance).
- If you have a recurring charge that you want to set up for automatic payments, a secured card can be used.
- Some secured cards offer additional features like fraud protection, credit tracking services, and online banking.
It comes down to what's most important to you. If it's the convenience of shopping with plastic, then both secured cards and prepaid cards can help. But if you're looking to build your credit for the future, secured credit cards may be the way to go.