Secured card or prepaid card?

If you’re looking for a convenient alternative to paying with cash, you may consider a prepaid card or a secured credit card. While the two have similarities, only secured credit cards can affect your credit and help you build credit when used responsibly. Keep reading to see how else these cards are different. 

Key takeaways

  • Prepaid cards only allow you to spend what’s already been loaded onto the card.
  • Secured credit cards function like any other credit card, except they require a security deposit to open.
  • Only secured credit cards can affect your credit. They can help you build credit when used responsibly.

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What’s the difference between prepaid and secured credit cards?

Prepaid cards and secured credit cards have similarities, but here are some key differences:

  Prepaid cards Secured credit cards
Credit checks Not usually required Required during the application process
Up-front costs Preloaded amount, plus any fees Security deposit to open a line of credit
Spending limits Up to the card’s preloaded amount Same or more than the security deposit
Payments Used to load and reload the card Minimum monthly payment required
Interest No interest No interest unless you carry a balance
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 reloadable cards, require you to pay money up front. That money goes on the card, which can be used to make purchases. Once the money on the card is used, you’ll have to add more to continue using it. 

You can generally find prepaid cards at retailers, banks, credit unions, online or over the phone. Keep in mind: Some prepaid cards have a lot of fees—like those for activation, adding money and transactions—that can quickly eat away at the money you’ve 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 since they don’t report your credit history to the major credit bureausEquifax®, 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 security deposit, and then you can use it as you would a traditional or unsecured credit card. The security deposit 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.

Secured card issuers typically report your credit history to the major credit bureaus, like they do for traditional unsecured credit cards. So if you’re just starting out or rebuilding your credit, using one responsibly may help you build credit. 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.

Should you get a prepaid card or secured credit card?

A secured credit card can be a great tool to build credit for those 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.

Alternatives to prepaid and secured cards

If you’re considering prepaid cards or secured credit cards because you have bad credit or fair credit, there are other types of credit cards that also may be available. You may want to consider using Capital One’s pre-approval tool to see what cards you may be eligible for, with no impact on your credit.

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Prepaid vs. secured credit cards in a nutshell

If you’re looking for the convenience of shopping with a card, then both secured cards and prepaid cards might help. But if you’re looking to build your credit for the future, only secured credit cards can help you do that.

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