Credit Card Comparison Blog

4 Things You Need to Know About Prepaid and Secured Credit Cards

Are unsecured credit cards in high demand right now? Unsurprisingly…no. On the other hand, a different kind of credit card are in high demand. Prepaid credit cards and secured credit cards.

Why? Banks, credit unions and credit card companies are much more resistant to lend to to less-than-perfect consumers. Spending on a prepaid credit card is limited because the consumer can only spend as much as has been “loaded” onto the card. A secured credit card is one that has an asset tied to it which can be repossessed by the creditor in the event of nonpayment.

These different category of credit cards have generally been marketed to people with a limited or poor credit history – especially instant approval credit cards. However, more and more consumers are considering prepaid and secured credit cards to combat the danger of skyrocketing credit card debt.

However, there are many things to consider.

1. Protection. There aren’t any prepaid cards that offer any protection against unauthorized charges, fraud and/or theft. Some secured credit cards limit the cardholder’s liability to only $50, but the charges must be disputed within 2 business days. After 2 business days, the cardholder’s liability increases to $500. After 60 days, the secured credit card offers no protection whatsoever.

2. Reporting to Major Credit Bureaus. If you prefer your credit card activity to be reported to all of the major credit card bureaus often, a secured credit card is a good choice. Responsible usage of secured credit cards are an excellent way to rebuild or build a solid credit history. While secured credit cards do report to TransUnion, Equifax and Experian…prepaid credit cards do not report to any of these credit bureaus.

3. Fees. Prepaid and secured credit card companies do not make their money in the traditional way. They do not make money off of interest payments because the consumer can only spend “so much.” They have to make a profit another way. This often includes monthly fees, transaction fees, ATM withdrawals, etc.

4. Costs. Hidden costs might be more prevalent with prepaid and secured credit cards than with unsecured credit cards because the credit card company cannot make money off of carried balances and interest payments.

More and more consumers are becoming aware of secured credit cards and prepaid credit cards. They are a good choice if you are looking to keep credit card debt to a minimum, yet still build your credit history.