Secured credit card vs. prepaid credit card
You might already know there are different types of credit scores—and that you may have more than one. That’s because there are multiple credit-scoring companies. And they each have multiple scoring models that can be used to calculate credit scores.
Keep reading to learn more about two of those credit-scoring companies, VantageScore and FICO.
What you’ll learn:
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Credit scores are based on the information in credit reports and are used to make lending decisions.
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VantageScore and FICO are the credit-scoring companies most commonly used by lenders.
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Credit-scoring companies each have their own credit-scoring models for determining credit scores.
- Consumers often have multiple credit scores, because there are multiple credit-scoring companies and models.
What’s the difference between prepaid and secured credit cards?
Exploring the ways prepaid cards and secured credit cards differ may help you decide which is right for you. Here’s how they compare:
| Prepaid cards | Secured credit cards | |
|---|---|---|
| Credit checks | Not usually required | Required during the application process |
| Upfront costs | Preloaded amount, plus any fees | Security deposit to open a line of credit |
| Spending limits | Up to the card’s preloaded amount |
Credit line is typically the same or more than the security deposit |
| Payments | Used to load and reload the card | Minimum monthly payment required |
| Interest rates | No interest |
Typically, variable APR; charges can be avoided or minimized by paying off the statement balance each month |
| How it affects your credit | Doesn’t build credit | Can build credit with responsible use |
| Protection against fraud | Potentially less protection than credit cards | Often offer standard credit card protections |
What is a prepaid card, and how does it work?
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 a lot of fees. And these fees can quickly deplete the money loaded onto the card.
Prepaid cards also aren’t connected to a bank account, although you might be able to refill them using a checking account or ATM. And because they don’t report your credit history to the major credit bureaus—Equifax®, Experian® and TransUnion®—prepaid cards can’t help you build credit.
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.
What is a secured credit card, and how does it work?
A secured credit card is a line of credit that requires a one-time security deposit to open the account. The security deposit is typically refundable and acts as collateral to open the line of credit. 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 traditional or unsecured credit card. An unsecured card is a credit card that doesn’t require a security deposit.
Secured card issuers typically report your credit history to the major credit bureaus like they do for unsecured credit cards. So if you’re establishing or rebuilding your credit, using a secured card responsibly may help. And with responsible use, you might be able to upgrade to an unsecured credit card and receive your deposit back.
Some secured cards also offer additional features like fraud protection, digital features and online banking. Some may even offer the ability to earn rewards. For example, the Capital One Quicksilver Secured Rewards card lets cardholders earn 1.5% cash back on every purchase.
Should you get a prepaid credit card or a secured credit card?
A secured credit card can be a great credit-building tool for people with little to no credit history or who are rebuilding their credit. By making on-time payments and using the card responsibly, a secured credit card could also help you upgrade to an unsecured credit card with a higher credit limit and more perks.
Both secured credit cards and prepaid cards can be convenient ways to make everyday purchases. Either one might help if you’re new to budgeting since you can only spend a fixed amount.
Secured vs. prepaid credit cards FAQ
Here are the answers to some frequently asked questions about secured credit cards and prepaid credit cards.
What are some alternatives to prepaid and secured cards?
If you’re considering a prepaid card or a secured credit card because you have less-than-perfect credit, you should know that other types of credit cards also may be available. Capital One has credit cards for bad credit and credit cards for fair credit.
You can use Capital One’s pre-approval tool to see what cards you may be eligible for with no impact on your credit.
Will a secured card raise my credit score?
Credit scores are complex. Whether you increase your scores depends on how you use the card. When used responsibly, a secured card can be a tool you can use to improve your scores over time.
How long should I keep my secured credit card?
Instead of focusing on keeping your secured card for a certain amount of time, it might be better to concentrate on using the card responsibly while you have it. That way, you can build your credit, which could help you qualify for an unsecured card. You may even be able to upgrade a secured card to an unsecured card without closing your account.
Key takeaways: Secured vs. prepaid credit cards
If you’re looking for the convenience of shopping with a card, both secured cards and prepaid cards might help. But if you’re looking to build your credit, only one of the two—secured credit cards—can help you do that.
If you decide a secured credit card is right for you, you can compare Capital One secured credit cards to find one that suits your needs. You can also check for pre-approved card offers before you apply with no harm to your credit.
Explore more from Capital One
Are you new to credit or searching for your next credit card? Capital One can help:
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Check for pre-approval offers with no risk to your credit scores.
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Earn unlimited 1.5% cash back on every purchase, every day with Quicksilver or other cash back rewards cards.
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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.
