Secured Credit Cards - Stepping Stones to Better Credit

It may come as a surprise to readers that there is a difference between a secured credit card and a prepaid debit card. Most people assume they are the same.

There is a key difference that is important for you to know.

A prepaid debit card allows you to use the money that you have deposited and once that money is over you cannot use the card again until you refill the account with more money. It acts as a convenience to avoid carrying cash when purchasing and also prevents you from spending more money than you already have. For someone who is new to plastic this is a very good card for understanding how the system works. Think of it as an initiation card which you use before you move on to other cards.

A secured credit card is one that also involves depositing money into the account before you can use the card but the money acts as a credit line. That is the key difference. That money determines your credit limit.

Since it is a credit line, automatically the activity of this card reports to the credit bureaus.

A prepaid debit card does not report to credit bureaus because you are not actually using a line of credit, you are merely using a convenience.

In a prepaid debit card there is no question of having to pay interest or late fees because at each use the money is directly being deducted from your account.

In a secured credit card the money is acting as collateral and allows you to have a rotating credit of the amount serving as collateral, hence late fees and interest rates apply till the point you close the account at which the collateral will be used to adjust the money owed.

Both cards do involve fees and this is something you should look into carefully when selecting the card. Prepaid debit cards may have transaction fees with each use. Secured credit cards generally have application fees, monthly fees, annual fees and miscellaneous fees such as over the limit fees.

A secured credit card is a good tool to reestablish personal credit. When life goes through a rough patch we might be forced to play truant. However one rough patch need not be a permanent disfiguring event.

When selecting a secured credit card choose one that has the least amount of fees. Some cards have a one time fee, while others have annual fees, and yet others have monthly fees. Try and see that you pick a card with either a one time fee or an annual fee. Understand that because you are still seen as a risky proposition the interest rates on the secured credit cards are high. Since you should be looking to pay your balance in full with each paying cycle, this should not really matter. Please keep in mind that it is very important that you do actually pay the full amount as otherwise you may find yourself in a bigger mess than you already may be in.

Consider this card as a chance to turn your life around, because if you use this card responsibly then you will start improving your credit score which can only mean better terms of credit the next time round.

Some of the good places to get secured credit cards are Public Savings Bank, Orchard Bank, and Capital One.

Click here to find out how to save money on credit cards

Compare and save on credit cards, cell phone, long distance, Internet access, mortgages, insurance, and more at www.dontspendmore.com

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