Credit Card Basics

What is the Difference Between a Secured Card and Prepaid Card?

A secured card functions almost identically to a standard revolving credit card account. The primary difference is that the credit limit is tied to your savings account balance. To open a secured account you must deposit a specified amount of cash into a savings account. Your credit limit is a portion of the balance in that account. If you fail to pay the charges you make, the bank can withdraw funds from the savings account. That's why it is called a secured card. The savings account balance is security against you failing to repay the charges you make.

A secured card can be reported to Experian and other credit reporting companies and becomes part of your credit report; therefore, it can help you to build your credit history.

A prepaid card is a cash card, not a credit card. Prepaid cards work similar to a debit card in that cash is loaded onto a card. You can use that card and access the cash until the account balance is spent. At that point, you'll need to re-load the card by depositing more money. Essentially, a prepaid card is a substitute for using cash. Prepaid cards are not reported to the national credit reporting companies and do not help you build credit.

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Scoped on: 05/24/2016