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Step 1
Compare the annual fee. Most prepaid credit cards, which are also known as debit cards, do not charge an annual fee. Secured credit cards on the other hand do. The annual fees for these cards vary depending on the card issuer.
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Step 2
Review the interest rate. Prepaid cards do not charge interest rates. Generally, a prepaid card takes the money directly from an existing savings or checking account. It’s pretty much the same as using cash. Secured credit cards on the other hand charge rather high interest rates. Because secured credit cards are used by people who either have poor credit or no credit history, banks charge interest as part of the credit rebuilding process. The unfortunate part of it is secured credit card holders are charged interest for using their own money.
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Step 3
Check to see if they are reloadable. In other words, see if adding more money to the account will increase your credit limit. Prepaid credit cards allow you to use whatever money you currently have in the bank. So, if you have $500 today and $1,000 tomorrow, you can use your prepaid card to access the amount in the account.
Secured credit cards are not reloadable. Therefore, if you open an account with $500, your credit card limit becomes $500. You cannot increase the limit by adding more funds to the account. -
Step 4
Inquire about Credit bureau reporting. Prepaid credit card use is not reported to the various credit bureaus. Secured credit cards are. Since secured credit cards are used as a steppingstone to rebuilding credit, the issuing company reports your credit limit, outstanding balance and monthly payments to credit reporting agency.
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Step 5
Think about when to graduate to the next level. Prepaid credit cards can be used year after year without the need to graduate to the next level. It’s a convenient way to access cash from your bank account without being penalized with interest charges and annual fees.
Secured credit cards, however, should be thought of as a steppingstone. The thought of paying a high interest rate and annual fees to use your own money should be enough motivation for you to graduate to a full-fledged credit card. Exhibiting favorable credit history with a secured credit card for a period of at least a year may be enough for you to apply for a nonsecured credit card.
