Do you know the difference? Many people don't and actually can lose plenty of valuable time rebuilding their credit by choosing the wrong type of credit cards. So which one is the right choice? Depends on your goal, but if you are looking to rebuild your credit, stick to the secured credit card. Looking to avoid future debt, interest rates and high fees? Stick to prepaid. We break down the differences between the two credit cards for you so you don't have to.
1. Prepaid Credit Cards
This type of credit card works very much the same way a regular credit card does in that you can use it to make purchases without cash. That is where the similarity stops. Prepaid credit cards do not include credit reporting to major credit bureaus (think Equifax and TransUnion Canada). What does this mean exactly? Forget about improving your credit rating with this type of card as it will be next to impossible to determine your credit history. As the name implies, this type of credit card requires you to deposit your own funds into an account associated to the credit card before you can actually use it. Although it does not help with improving your credit score, the prepaid credit card can definitely help you eliminate the risk of having bad debt, remove interest rates and additional charges. You determine how much you get to spend by how much you deposit into the account. Each time you run out of funds, you will need to deposit more money before you are able to use it again.
]]>
Benefit:
Eliminates the risk of having bad debt, high interest rates and additional charges
Fees associated with this type of card will be the same as for a debit card. Check with your banking institution as to what these are
Negative:
No reporting to major credit bureaus which does not help you improve your credit score
Likely subject to a daily maximum withdrawal limit
2. Secured Credit Cards
A secured credit card allows you to enjoy the benefits of a credit line like any other credit card holders. Unlike the prepaid credit cards, a secured credit card allows you to pay for items you purchase after the purchase. Instead of depositing money into an account for the credit card, you will be required to put up a security deposit which can (and usually is) determines your credit limit. So the bigger your security deposit, the higher your credit limit will be. This is the preferred credit card as the credit limit will oftentimes exceed the security deposit (you get more to spend than you put up!). Looking to rebuild your credit history? Here is the credit card to help you do it. Like a regular credit card, secured credit cards are reported to the major credit bureaus (Equifax and TransUnion Canada). Now this being said, it is very important to remain within the credit limit of the card and pay your bills on time otherwise it can extremely costly both to your credit history and to your wallet.
Benefit:
Activity is reported to the major credit bureaus which will enable you to rebuild your credit history
Negatives:
Can negatively affect your credit history if you don't stay within the credit limit or pay your bills on time
Can have fees associated with it such as activiation fees, annual fees, late fees and over credit limit fees
Charges interest on outstanding balances
Living the North American dream (credit land) can be a very scary place, especially if you have misused credit in the past. Luckily, options like these exist to help people recover from the credit blues. Whether you are looking to remain "bad" debt free by using the prepaid credit card or your goal is to rebuild your credit history with the secured credit card, you can't go wrong with either of these options. Be sure to choose the credit card that best suits the need of your end goal.
Do you have any experience with either type of credit card? Share your experiences, what better way to help others become informed!
A real estate investor that has been working with Rent-to-Owns for the last two years. His goal is to help as many people as possible realize their dream of home ownership and ensure that people have the information they require to make informed decisions.
Article Source