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:
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Secured credit cards function like any other credit card. But to open a secured credit card, you have to put down a security deposit.
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The security deposit acts as collateral, and it’s usually refundable.
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Prepaid cards only allow you to spend what’s loaded onto the card.
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Prepaid card activity isn’t reported to credit bureaus. Unlike secured cards, prepaid cards 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 typically the same or sometimes 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?
A prepaid card is a type of card that requires 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. These cards are also known as preloaded or reloadable cards.
You can generally get prepaid cards online, at banks, credit unions or in stores. Keep in mind that some prepaid cards have fees that can deplete the money loaded onto the card. According to the Consumer Financial Protection Bureau,common fees for prepaid cards can include:
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Activation fee
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Transaction fee
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Decline fee
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Inactivity fee
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Foreign transaction fee
Like credit cards, prepaid cards sometimes have an expiration date. But unlike credit cards, if a prepaid card is lost or stolen, you might not be protected.
Do prepaid cards affect credit scores?
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 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 security deposit is typically refundable and acts as collateral. 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 credit card that doesn’t require a security deposit.
Some secured cards offer the ability to earn rewards. For example, the Capital One Quicksilver Secured card lets cardholders earn 1.5% cash back on every purchase.
Do secured credit cards affect credit scores?
Secured card issuers typically report your credit history to the major credit bureaus. So if you’re establishing or building your credit, using a secured card responsibly can help. You might eventually be able to upgrade to an unsecured credit card and receive your deposit back.
Should you get a secured credit card or a prepaid card?
Both secured credit cards and prepaid cards can be convenient ways to make everyday purchases.
A secured credit card requires a security deposit to open. But you’re still required to make at least a minimum monthly payment to avoid paying interest. With responsible use, you could also build your credit scores with a secured card.
It may also be helpful to understand any fees associated with a prepaid card.
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 a prepaid card or a secured credit card because you have less-than-perfect credit, you should know that other types of credit cards also may be available. For example, Capital One has credit cards for fair credit.
You can see if you’re preapproved with no impact on your credit scores.
Will a secured card raise my credit scores?
Credit scores are complex. Whether your scores increase depends on how you use the card. With responsible use, a secured card can be a tool to help improve your scores over time.
How long should I keep my secured credit card?
Instead of focusing on keeping your secured card for a certain amount of time, it might be better to concentrate on using the card responsibly while you have it. As you build your credit, it could help you qualify for an unsecured card. You may even be able to upgrade your card without closing your account.
Is it better to use a secured credit card or a prepaid card?
Choosing between a secured credit card and a prepaid card can largely depend on your individual needs and goals.
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.
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 can be handy. But if you’re looking to build your credit, only a secured credit card can help.
Explore more from Capital One
Are you new to credit or searching for your next credit card? Capital One can help:
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Check for pre-approval offers with no risk to your credit scores.
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Earn unlimited 1.5% cash back on every purchase, every day with a Quicksilver card or other cash back rewards cards.
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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.