Secured credit card vs. prepaid card: What’s the difference?
Secured credit cards and prepaid cards are both convenient payment methods that require you to put money down before you can use the card. The key difference is that a secured card involves borrowing from a lender. And that means a secured card can affect your credit.
With a prepaid card, on the other hand, you load funds onto the card and then use the card to make purchases. Prepaid cards aren’t attached to a lender. And using a prepaid card doesn’t affect your credit.
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 with less-than-perfect credit who 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 type of credit card that requires you to pay a one-time security deposit to open the account. The security deposit is typically equal to the credit limit.
The deposit is usually 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 from a lender, and that money must be repaid. Some secured cards offer the benefit of earning 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 also if your card 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, but Capital One does.
What is a prepaid card and how does it work?
A prepaid card is a type of debit card. You load funds onto the card and can then use it to make 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. Some prepaid cards have fees that can deplete the money loaded onto the card, including:
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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 protections if they’re lost or stolen. That could mean you might not be able to recover the money.
Do prepaid cards build credit?
Because prepaid cards don’t involve borrowing, their activity isn’t reported to the credit bureaus—which means they can’t be used to 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 | |
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Credit checks |
Required during the application process | Not usually required |
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Up-front costs |
Security deposit required to open a line of credit | Preloaded amount required, plus any fees |
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Spending |
Generally, can spend up to the card’s credit limit, which is typically equal to the security deposit | Can spend up to the card’s preloaded amount |
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Payment |
Monthly payments | Because money is preloaded, there are no additional payments |
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Interest |
Typically variable APR, but interest charges can be avoided or minimized by paying off the statement balance on time each month | No interest |
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Fees |
Fees can vary and may include an annual or late payment fee | Fees can vary, but could include charge fees for activation, loading funds, inactivity and more |
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Credit building |
Can be used to build credit with responsible use | Don’t build credit |
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Fraud protection |
Often offer standard credit card protections | Offer potentially fewer protections than credit cards |
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Benefits |
May come with other benefits, like the chance to earn cash back for purchases | Don’t typically offer additional benefits |
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 can do that in most cases.
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 convenient ways to make purchases.
If you’re looking to access credit, Capital One has traditional, unsecured credit cards for fair credit. Or you could access credit by becoming an authorized user on the credit card account of a trusted family member or friend.
If you simply want to make purchases without carrying cash, you could consider using a debit card. Debit cards are attached to bank accounts and draw from existing funds. Plus, they generally offer more protections than prepaid cards do.
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.
What are the disadvantages of using a prepaid card?
There are a few potential disadvantages to using a prepaid card, such as they:
- Don’t offer an opportunity to build credit
- Can come with a variety of fees
- May provide fewer protections against fraudulent charges than credit cards and debit cards
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 by using a credit card responsibly, explore cards for people with fair credit.
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Earn 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, and using it won’t hurt your credit scores.
