What are Secured and Prepaid Credit Cards?

by : Maggie Wright

As there are so many people searching for a way to remake their credit, secured and prepaid credit cards are becoming extremely popular. If you are not well-acquainted with credit cards, you are sure not to know what the difference between a prepaid and a secured card is, and how both of them can be used for building credit.
Secured credit cards are used mostly in the same way as regular credit cards, but the risk with them is much less. The owner of the card puts money into an account that is employed to secure a line of credit. Normally, the cardholder has to deposit a sufficient amount of money to cover up to 200% of the credit limit on the card. Secured cardholders have to make timely payments, exactly like regular cardholders have. It is very good since it gives good repayment habits and assists in establishing a spotless payment history, which is an important factor in reconstructing damaged credit. If a secured cardholder makes a mistake, the card issuer is safe and can recover his loss by getting it from the cardholder's deposit account.
As for the prepaid credit cards, they cannot be called credit cards at all. They have a certain resemblance to them in form and usage, but they have more in common with debit cards. The owner of the card puts money on his account and uses only these funds in paying with a card. There is actually no credit offered by the card issuer. Prepaid cards are mostly popular with parents of teenagers who want their children to use a real credit card, but try to protect them from spending over limits. To get a prepaid credit card, one does not have to bring large deposits. The prepaid card limit is totally a decision of the purchaser.
Both secured and prepaid credit cards can be used to set up or rebuild credit. They have a lot in common as well as some noteworthy differences. If your credit is spoiled, these cards provide you with a chance to improve your situation. You might also prefer to use these cards, if you have difficulties with limiting your own spending. However, if your credit is all right, and you can control your funds, you may be free to use a typical, unsecured credit card.