Secured Credit Cards vs Prepaid Credit Cards
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by: leeroger2054
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Word Count: 488
Date: Sun, 11 Sep 2011 Time: 11:22 PM
If you are confused by the different types of cards out there, then this article will help clarify their differences, and the benefits and costs associated with them.
How a Prepaid Credit Card Works
Prepaid credit cards are a special type of credit card, issued by banks and organisations, and offer a different way to deal with your finances. A prepaid credit card can help you, when you want to do certain things that would usually require a credit card – such as making hotel reservations or car rental bookings – but you do not own a credit card. The difference between a prepaid credit card and a standard credit card is that the former is topped with money by the user, and is afterwards used in exactly the same way as the latter. You can only spend the money you inject into the account, and this gives you total control, and eliminates the possibility of debt, interest and charges.
In general you would apply for a prepaid credit card if your bank does not offer a debit card service, or if you want to keep personal spending and your bank account separate. These are also a great idea for parents who want to control the money their children are using.
Importantly, if you're looking to build or rebuild your credit rating with a prepaid credit card then unfortunately you cannot do so. The card does not strictly behave like a credit scheme, and as such does not build a credit rating.
Secured Credit Card Details
Unlike Prepaid cards, secured cards are actually credit cards, which are designed for those in financial trouble, with a poor credit history. If you have bad credit, but you need a credit card to rebuild your rating, then a secured credit card is your best chance.
While secured credit cards behave in the same way as regular cards, with the associated interest rates, charges on balance transfers and so on, the former will ask you for a cash deposit up-front, of which the card's spending limit will be a proportion. A credit supplier will know the risks of partnering with people with bad credit, so this extra money reduces the risk. Additionally there will usually be an annual fee for the privilege.
While you may feel discouraged when applying for a secured credit card, the issuer (for a price) is giving you the opportunity to make amends to your poor credit history. Also, if you keep in good standing, and make payments on-time, the vast majority of issuers will transfer you to a regular credit card after a year or so.
There are a great deal of websites available, offering advice on what types of cards are best for your situation, and also offer informed comparisons between different cards and lenders, so that you don't have to make all the effort in deciding which secured credit card or prepaid credit card would be best for you.
About the Author
Denise Beresford is a contributor to and blogger at blog.firstcredit.net. Firstcredit.net offers free reviews and allows you to examine secured credit cards and prepaid credit cards before you apply.
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