1. The Credit Factor



If you're trying to decide between a prepaid credit card or a secured Visa credit card, chances are that your credit isn't exactly spotless. If you want to improve your credit rating, understanding the differences between prepaid cards and secured cards is critical.

If you opt for a prepaid credit card, you're not doing anything to improve your credit rating. This is because prepaid credit cards typically aren't reported to the credit bureaus. On the other hand, when you are issued a secured Visa credit card, your account activity is reported to the credit bureaus, improving your credit.

By managing your secured Visa credit card properly, you aren't just gaining access to a credit card and the benefits that go along with carrying one, but you're also increasing your credit score and rebuilding your credit history.

2. The Money Factor

There is one thing that prepaid credit cards and secured credit cards have in common. Whether you open a secured credit card or a prepaid credit card, you're going to have to send in money. That, however, is where the similarity ends.

When you give money to a prepaid credit card company, they credit the amount to your prepaid card and then you can spend the money you've put on it. That's it -- end of story. When all the money is spent, you either add more or throw the card away.

When you send in money to open your secured Visa credit card account, the money is put into a savings account and you earn interest on that account. Then the credit card company extends you a revolving line of credit equal to the amount of that account.

3. Monthly Statements

When it comes to a prepaid credit card, there aren't monthly statements to pay. With a secured Visa credit card, however, you receive a monthly statement that must be paid on time (or it will affect your credit). You will have the choice of paying the minimum amount due, the balance in full or anything in between. This activity is then reported to the credit bureaus.

4. Hotels and Cars

Nowadays when you check into a hotel they ask you whether or not you are using a prepaid credit card and many hotels and car rental companies won't even accept prepaid credit cards as a form of payment. However, there is nothing differentiating an unsecured credit card from a secured Visa credit card, which means you can use your secured card to book hotels and car rentals without any hassle.

5. Moving Forward

If you carry a prepaid credit card, there will never be a chance of it evolving to an unsecured credit card. However, it is not uncommon for a secured Visa credit card to evolve into an unsecured credit card once you have established a payment history and have proven that you can be trusted with the card.

So while a prepaid credit card may look a bit like a secured Visa credit card, the fact remains that they are very different in many ways. If you want to rebuild your credit, then a secured Visa credit card is really the only way to go.