Secured credit card vs. prepaid credit card
Secured credit cards and prepaid credit cards can both offer a convenient alternative to cash. But only secured credit cards can help you build credit when used responsibly. Keep reading to learn more about the differences between secured cards and prepaid cards.
What you’ll learn:
- Secured credit cards function like any other credit card. But to open a secured credit card, you have to put down a security deposit.
- The security deposit acts as collateral, and it’s usually refundable.
- Prepaid cards only allow you to spend what’s already been loaded onto the card.
- Prepaid card activity isn’t reported to credit bureaus. So unlike secured cards, they can’t be used to build credit.
What’s the difference between prepaid and secured credit cards?
Exploring the ways prepaid cards and secured credit cards differ may help you decide which is right for you. Here’s how they compare:
| Prepaid cards | Secured credit cards | |
|---|---|---|
| Credit checks | Not usually required | Required during the application process |
| Upfront costs | Preloaded amount, plus any fees | Security deposit to open a line of credit |
| Spending limits | Up to the card’s preloaded amount |
Credit line is the same or more than the security deposit |
| Payments | Used to load and reload the card | Minimum monthly payment required |
| Interest rates | No interest |
Typically, variable APR; charges can be avoided or minimized by paying off the statement balance each month |
| How it affects your credit | Doesn’t build credit | Can build credit with responsible use |
| Protection against fraud | Potentially less protection than credit cards | Often offer standard credit card protections |
What is a prepaid card and how does it work?
Prepaid cards, also known as preloaded or reloadable cards, require you to pay money upfront to fund the card. That money can then be used to make purchases. Once the money on the card is used up, you have to add more to continue using it.
You can generally get prepaid cards at retailers, banks, credit unions, online or over the phone. Keep in mind that some prepaid cards have a lot of fees—such as those for activation, adding money and transactions—that can quickly eat away at the money loaded onto the card.
Prepaid cards also aren’t connected to a bank account, although you might be able to refill them using a checking account or ATM. And because they don’t report your credit history to the major credit bureaus—Equifax®, Experian® and TransUnion®—prepaid cards can’t help you build credit.
Like credit cards, prepaid cards sometimes have an expiration date, so it’s a good idea to check the terms of your card. But unlike credit cards, if a prepaid card is lost or stolen, you might not be protected.
What is a secured credit card and how does it work?
A secured credit card is a line of credit that requires a one-time security deposit to open the account. The security deposit is typically refundable and acts as collateral to open the line of credit. It can be helpful to think of it like the deposit required to rent an apartment. Once the secured card account is open, you can use it as you would a traditional or unsecured credit card.
Secured card issuers typically report your credit history to the major credit bureaus like they do for unsecured credit cards. So if you’re establishing or rebuilding your credit, using a secured card responsibly may help. And with responsible use, you might be able to upgrade to an unsecured credit card and receive your deposit back.
Some secured cards also offer additional features like fraud protection, digital features and online banking. Some may even offer the ability to earn rewards. For example, the Capital One Quicksilver Secured Rewards card lets cardholders earn 1.5% cash back on every purchase.
Should you get a prepaid card or secured credit card?
A secured credit card can be a great credit-building tool for people with little to no credit history or who are rebuilding their credit. By making on-time payments and using the card responsibly, a secured credit card could also help you upgrade to an unsecured credit card with a higher credit limit and more perks.
Both secured credit cards and prepaid cards can be a convenient way to make everyday purchases. And either one might help if you’re new to budgeting since you can only spend a fixed amount.
Secured vs. prepaid credit cards FAQ
Here are the answers to some frequently asked questions about secured credit cards and prepaid credit cards.
What are some alternatives to prepaid and secured cards?
If you’re considering prepaid cards or secured credit cards because you have less-than-perfect credit, other types of credit cards also may be available. Capital One has credit cards for bad credit and credit cards for fair credit.
You can use Capital One’s pre-approval tool to see what cards you may be eligible for with no impact on your credit.
Is a secured credit card like a debit card?
Secured credit cards and debit cards can both be used to pay for purchases online and in person. But secured credit cards are linked to a revolving line of credit. You can make purchases up to a certain credit limit. Then, as you pay back those purchases, that credit becomes available again.
A debit card, on the other hand, is linked to a checking account. When you make purchases, you’re spending money you already have instead of borrowing against a credit line.
Debit cards also generally don’t help with building credit, while using credit cards responsibly can.
How can a secured credit card be used to build credit?
You may be able to build credit by using a secured credit card responsibly over time. Responsible use includes always paying on time and paying your balance in full each month.
Key takeaways: secured vs. prepaid credit cards
If you’re looking for the convenience of shopping with a card, both secured cards and prepaid cards might help. But if you’re looking to build your credit, only one of the two, secured credit cards, can help you do that.
If you decide a secured credit card is right for you, you can compare Capital One secured credit cards and check for pre-approved card offers before you apply.
Explore more from Capital One
Are you new to credit or searching for your next credit card? Capital One can help:
- Check for pre-approval offers with no risk to your credit scores.
- Earn unlimited 1.5% cash back on every purchase, every day with Quicksilver or other cash back rewards cards.
- Explore credit cards you can use to build credit responsibly and earn rewards.
- Monitor your credit score with CreditWise from Capital One. It won’t hurt your credit, and it’s free for everyone.
