Secured Credit Card vs. Prepaid Debit Card

You don’t want to carry cash to pay for everything when you go out, especially if you’re buying something that’s a little more expensive (maybe it’s just me but I hate having to carry too much cash around).

Or maybe you want to be able to buy things online (it’s tough to squeeze your cash into the computer to pay).

Thing is, you don’t have good enough credit to get a credit card to use.

What do you do?

One of the ways that you can work to rebuild your credit score is to make use of a secured credit card.

A secured card can provide you with a jumping-off point for your credit, particularly if you are having trouble qualifying for a more traditional unsecured credit card.

Another popular card you see these days is the prepaid card.

A prepaid card and a secured card can both help you pay for items, in fact they both require money up front.  But they are quite different types of cards.

As you choose which piece of plastic will work best for you, it’s important to understand the difference between a secured credit card and a prepaid debit card.

A Secured Credit Card Versus a Prepaid Debit Card

Secured Credit Card

secured credit card vs prepaid debit card

A secured card or a prepaid card – which is best for you to carry in your wallet?

With a secured credit card, you provide money, up front, that serves as collateral.  That money is usually held in a savings account attached to your credit card account.  If you don’t pay on your credit card, the issuer can use the money to pay what you owe.

It’s important to realize, though, that the money held as collateral is not supposed to be used to make regular payments on your credit card. Instead, it just sits there as security (and hopefully earns you interest).

Your payment history is, however, reported to the credit bureaus, and you can improve your credit score with the help of a secured card. After a few months of responsible behavior, you might be able to convert your secured credit card into an unsecured card.

Your takeaway – The money you put up is usually how much credit you get.  This is extra money you need to back the credit you are given.  Hence this is a credit card.

Prepaid Debit Card

A prepaid debit card is easy to confuse with a secured credit card.

You use them in similar ways, and a prepaid debit card is often branded with a credit card company logo.  However, it’s important to remember that a prepaid debit card is not a credit card.

With prepaid debit, you load money onto the card.  This is money that you can use for purchases.  Every time you make a purchase, it is deducted from the amount available on the card.  If you run out of funds, you have to add more to the card in order to use the card further.

Your prepaid debit card won’t help you build up your credit, either.

Your activity isn’t reported to the credit bureaus, and since it’s not a loan, it doesn’t matter how responsible you are.  Plus, your prepaid debit card isn’t going to be converted into an unsecured credit account.

Your takeaway – You put your money onto a card that you can use to spend.  This is very similar to how a gift card from a store would work.  As you spend the amount left is less and less. This card is a debit card (kind of like what you get for an ATM – once you use the money it’s gone until you add more).

Which Should You Choose?

Whether you get a secured credit card or a prepaid debit card depends largely on what you hope to accomplish.

Both will provide you with an easy way to make payments almost anywhere in the world, and you can even use both online in most cases.

However, they both have very different purposes.

A secured credit card is ideal for helping you rebuild your credit.  If you can’t get any other type of loan, you can get a secured card that can help you begin rebuilding your situation.

A prepaid debit card, on the other hand, is ideal for the unbanked who are looking for something that allows them the opportunity to get some of the same services.  If you can’t qualify for a regular checking account, a prepaid debit card can be one relatively low cost option.

Realize that both of these products are generally considered last resorts to getting a secured credit card (one where you don’t have to put any money upfront).  They are often costlier than their more “regular” counterparts, and you need to be careful that you use them only when you have to.



Published or updated November 18, 2012.


  1. I think a secured card has more value in building a credit history than in rebuilding one. A secured card is a great way to establish a history of on-time payments for someone just getting started.

    For a person looking to rebuild history the first priority is on-time payments of existing accounts. Someone rebuilding credit implies a history of delinquency. These stay on your report for seven years. Any available funds out to be directed towards repaying debts, and getting current on obligations, rather than tying up money in a secured card account and facilitating further spending.

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