Im a big fan of credit cards primarily because they offer some great consumer protections. For example, my credit card number was recently stolen and my credit card companys fraud protection unit took care of everything. Because of this and other benefits of using credit cards, I recommend using a credit card if you can pay it off in full each month.

While many people with a poor credit score might think a credit card is out of their reach, there is good news.  Anyone can get a credit card even if you have bad credit, poor credit, or no credit. The key is knowing where to look. If your credit is less than stellar, then you should begin looking at prepaid cards and secured credit cards, both of which offer conveniences and benefits, and in the case of secured credit cards, help you build or improve your credit score.

Lets start by outlining the differences between these cards, then take a look at the pros and cons of using these cards. Basically a prepaid card is similar to a gift card or prepaid debit card, but it is branded by a credit card card issuer such as Visa, MasterCard, or American Express. They can be used virtually anywhere you can use a regular credit card, including online. However, prepaid cards arent really credit cards you prepay a balance on the card, then the balance decreases as you use it. If you need more money on your card, you load it by transferring more money to the card.

A secured credit card is a credit card, but it is secured with a deposit that acts as your credit limit and insurance for the issuer. When you open a secured credit card you make a deposit with the issuer, make charges as you would with any other credit card, then you pay off the balance. Your deposit remains with the card issuer as insurance against a default, but it remains your money and you can use it to pay your balance or you can get it back when you close your account. These cards are designed to help people build credit or improve their credit score.

As previously mentioned, prepaid cards work similar to a debit card you are spending money you already have loaded onto the card. There are a few advantages of prepaid credit cards. The first is that they dont require a credit check. Since you arent actually borrowing money, the credit card company doesnt need to know your credit score. And because you are spending money that has already been deposited, there arent any interest charges or monthly bills.

The main drawback to prepaid cards are the fees, sometimes including the following: loading fees, annual fees, set up fees and occasionally a check deposit fee. Additionally, since many of these cards dont report to the credit bureaus, so you may not be building your credit history or score.

The main advantage of using a secured credit card is to establish or reestablish your credit. Secured credit cards report monthly to the credit bureaus, so if youre paying your bill on time, youll improve your credit score. It seems ironic that you can improve your credit score by using a credit card doesnt it!? And in many cases, the company will increase your credit limit without charging you when youre a good customer.

Its highly recommended to keep at least half of your balance available at all times. That is to say, if you deposit $1,000, dont spend more than $500 without paying it off. In this way youll be building credit and showing that youre able to live within your credit limit. Many secured credit cards can be upgraded to a traditional unsecured credit card after enough time has passed and you have shown your ability to make payments on time.

The main drawback for these cards is that they often include a high set-up fee and many have an annual fee. If youre rebuilding your credit, you might want to look into other options after youve been with a secured card for a year or so.

Best Secured Credit Card: One of the best secured credit cards on the market is the Orchard Bank Visa Card by HSBC. It has low fees, reports to all three credit bureaus, and is accepted anywhere that VISA cards are accepted. Most importantly, most people will be approved. You can use this card to help build or improve your credit score. Apply for the Orchard Bank Visa Card.

Remember, the difference between a prepaid card and a secured credit card is that a prepaid card isnt going to improve your credit score. A secured credit card will over time, improve your credit score, and hopefully set you on the path to financial recovery.

Related Articles:

  • Pros and Cons of Secured Credit Cards
  • Using Credit Cards to Rebuild Your Credit Score
  • Why College Students Should Get a Credit Card NOW
  • Using Your Credit Card to Your Best Advantage
  • Credit Card Offers

Similar Posts:

Share