Secured credit card vs. prepaid card: What’s the difference?
Secured credit cards and prepaid cards are both convenient payment methods that require money to start using. The key difference is that a secured card involves borrowing. And that means a secured card can affect your credit.
A prepaid card, on the other hand, uses prepaid money for purchases.
What you’ll learn:
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Secured credit cards function like most other credit cards, except they require a refundable security deposit to open an account.
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Secured credit cards can be an option for people who, with less-than-perfect credit, can use them responsibly to build credit.
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Prepaid cards must be funded and reloaded as money is spent to use them.
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Because prepaid cards don’t typically involve borrowing, they can’t be used to build credit like secured cards can.
What is a secured credit card and how does it work?
A secured credit card is a line of credit that can be an option for people working to establish or build credit.
A secured card requires a one-time security deposit to open. The deposit is typically refundable and acts as collateral. Once you open a secured credit card account, you can use the card like a traditional unsecured credit card.
When you make purchases with a secured card, you’re borrowing money, and that money must be repaid. Some secured cards offer the ability to earn rewards. For example, the Capital One Quicksilver Secured card offers 1.5% cash back on every purchase.
Do secured credit cards build credit?
If you’re working to establish or build your credit, using a secured card responsibly could help. But that’s only if you use it responsibly and your issuer reports your account activity, like on-time payments, to the credit bureaus to include in your credit reports. Not all card issuers report account activity to the credit bureaus.
What is a prepaid card and how does it work?
With a prepaid card, you pay money up front to fund the card. This is the money that’s used for making purchases. Once the money on the card is spent, you have to add more funds to continue using it. Prepaid cards are also known as preloaded or reloadable cards.
You can generally get prepaid cards online, at banks, at credit unions or in stores. Keep in mind that some prepaid cards have fees that can deplete the money loaded onto the card. Common fees can include:
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Activation fees
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Transaction fees
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Decline fees
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Inactivity fees
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Foreign transaction fees
Like credit cards, prepaid cards sometimes have expiration dates. But unlike credit cards, prepaid cards may not offer you protection if the card is lost or stolen. That could mean you might not be able to recover the money.
Do prepaid cards build credit?
Prepaid card issuers don’t report your credit history to the major credit bureaus—Equifax®, Experian® and TransUnion®—so they can’t help you build credit.
What’s the difference between secured credit cards and prepaid cards?
Here’s a quick look at the similarities and differences.
| Secured credit cards | Prepaid cards | |
| Credit checks | Required during the application process | Not usually required |
| Up-front costs | Security deposit required to open a line of credit | Preloaded amount required, plus any fees |
| Spending | Generally, can spend up to the card’s credit limit, which is typically equal to or higher than the security deposit | Can spend up to the card’s preloaded amount |
| Payments | Monthly payments | Because money is preloaded, there are no additional payments |
| Interest | Typically, variable APR but interest charges can be avoided or minimized by paying off the statement balance on time each month | No interest |
| Fees | Fees can vary and may include an annual fee or late payment fee | Fees can vary, but could include charge fees for activation, loading funds, inactivity and more |
| Credit building | Can be used to build credit with responsible use | Don’t build credit |
| Fraud protection | Often offer standard credit card protections | Offer potentially less protection than credit cards |
Should you get a secured credit card or a prepaid card?
That can depend on your goals and preferences. Both secured credit cards and prepaid cards can be convenient ways to make everyday purchases. But if your plan is to build credit, only a secured card in most cases can do that.
Secured credit card vs. prepaid card FAQ
Here are answers to some frequently asked questions about secured credit cards and prepaid cards.
What are some alternatives to secured and prepaid cards?
Secured credit cards and prepaid cards aren’t the only ways to access credit.
Capital One also has unsecured credit cards for fair credit. Or you could access credit by becoming an authorized user on a family member’s or trusted friend’s account.
How long should I keep my secured credit card?
There’s no one-size-fits-all answer to how long you should keep your secured credit card account. It comes down to how useful the card is for you and whether closing it might negatively affect your credit.
You might consider keeping your secured card if you’re still building your credit. If your credit scores improve over time, you could then explore upgrading to an unsecured card that offers better rewards and a higher credit limit.
Key takeaways: Secured credit cards vs. prepaid cards
If you’re looking for the convenience of making purchases with a credit card, both secured cards and prepaid cards can be handy. But if you’re looking to build your credit, you might consider a secured credit card from Capital One.
Are you new to credit or searching for your next credit card? Capital One can help:
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See whether you’re pre-approved for credit cards without harming your credit scores.
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If you’re looking to build your credit with responsible use, explore cards for people with fair credit.
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Earn unlimited 1.5% cash back on every purchase, every day, with a cash back rewards card.
- Monitor your credit report and score with CreditWise from Capital One. It’s free for everyone, and using it won’t hurt your credit.
