A great alternative to prepaid credit cards is a secured credit card. Unlike the prepaid credit card we talked about in the previous article, a secured credit card is when you pay a security deposit, and usually the amount you put down as security is the amount of your limit.
Let’s talk about some of the reasons you would want a secured credit card over a prepaid, as there are many differences. First of all, a prepaid card is not attached to your credit score, it has no bearing on your credit, and so anyone over the age of 16 can own one and use it to shop online. Now, a secured is a little different in that it does have a bearing on your credit score. If you remember one of the reasons we talked about using a prepaid credit card was maybe you had some issues with your credit, well a secured credit card can help you rebuild that credit.
For example: let’s say you have had a bankruptcy in your past, well a traditional bank or credit card company will not give you a credit card. Your credit score will not meet the minimum requirements they have in place. Also you would not be able to get a mortgage on a house, and if you are looking at financing a newer car you are looking at paying at least 19% interest. I know this sounds like the end of the world but there is light at the end of this tunnel.
What you need to do is get a secured credit card. Use it to buy groceries or gas, use it for stuff you buy every month, but when you get the bill at the end of the month PAY IT OFF!!! Doing this will give you a positive credit score. This process is called rebuilding your credit. Doing this for about two years will bring your credit score back up to the place that you can get that house or a newer car.
What is a prepaid credit card? What’s the difference between a prepaid and a regular run of the mill card?
First of all a prepaid credit card is simply that, a prepaid credit card. You load money on the card and then you get to spend it using the card.
The main difference is that with a traditional credit card from your bank is, with a traditional credit card the bank would extend you a set amount of credit, for example $1000. When you make purchases using that card, the available amount of credit decreases. Say you have a balance of $600, you will have an available credit limit of $400 and you will get a bill at the end of the month for the credit you have used.
The limit on your prepaid card is whatever amount of money you load on it. If you load $1000 on your card, you use it just like a traditional credit card, but once the money is gone you have to reload it. You won’t get a bill at the end of the month and you don’t pay any interest.
There are a lot of different reasons that one would want to use a prepaid credit card for example, maybe you have had some financial hardships that led to some credit issues, and now you can’t get a formal credit card from a financial institution like a bank or credit union.
Purchasing online brings up another reason for a prepaid credit card. Some people just don’t like to use their traditional credit card on the phone or on the internet for security reasons, so they use a card that only has a set amount on it, if a thief gets the number they can only use what’s on the card. This is especially convenient when the person has a large limit on their traditional card.
Whether you have credit issues, are traveling overseas, or just don’t want to expose yourself to credit fraud on the internet, a prepaid credit card is right for you.
This blog coming soon. Everything you ever wanted to know about Prepaid Credit Cards in Canada