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 loaded onto the card.

• Prepaid card activity isn’t reported to credit bureaus. Unlike secured cards, prepaid cards can’t be used to build credit.

Exploring the ways prepaid cards and secured credit cards differ may help you decide which is right for you. Here’s how they compare:

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:

• Activation fee

• Transaction fee

• Decline fee

• Inactivity fee

• 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.

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.

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.

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.

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.

Here are the answers to some frequently asked questions about secured credit cards and 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.

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 a Quicksilver card 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.