Prepaid Credit Cards
Prepaid credit cards are a growing trend, though many rumors surround their purpose and use. Many people believe that prepaid credit cards and prepaid debit cards are one in the same, but they are different, as the term "prepaid credit card" is slang. In fact, a prepaid credit card is just another unofficial "term" for a prepaid debit card, which works similarly to a gift card or a bank card, in that you fund it with a pre-determined amount of cash and spend it accordingly. Once the prepaid card's value is depleted, you may either reload it with additional funds or discontinue using it. Users often choose a prepaid debit card to avoid opening a bank account, which can incur expensive usage and overdraft fees.
On the other hand, a secured credit card is more versatile and offers its user long term benefits. Many people incorrectly refer to secured credit cards and prepaid credit cards, because upon opening a secured credit card account, you pay the credit card company a cash deposit to help secure the card's credit line in case of a potential default. However, this deposit simply serves as collateral, and so long as you pay the balance in full and on time, you will receive a refund of your deposit upon closing the account.
Once the card company receives the deposit, you may begin making purchases, paying bills and using the card like you would any other credit line. Like traditional credit cards, secured credit cards have a preset credit line to which you may charge purchases and cash advances. Over time, you repay the amount you borrow with regular monthly payments, which can improve your credit history and boost your FICO score. Anyone can apply for a secured credit card, and most are approved, regardless of past credit problems.
Both prepaid debit cards and secured credit cards are widely accepted and available for online bill pay and ATM withdrawals in addition to in-store transactions. However, only secured credit cards have the power to improve your credit rating and your future ability to obtain credit.