With so many consumers looking for ways to rebuild their credit, secured and prepaid credit cards are growing in popularity. Some people swear by them, and others try to avoid them. If youre new to credit cards, you may have wondered how a prepaid card differs from a secured card, and how either kind can be used to build credit.
Secured credit cards work much like regular credit cards, but with less risk to the card issuer. The cardholder deposits money into an account, which is used to secure a line of credit. Typically, the cardholder needs to deposit enough money to cover 100-200% of the cards credit limit. For example, a one thousand dollar deposit would result in a credit limit of five hundred to one thousand dollars.
Secured cardholders are responsible for timely payments, just like regular cardholders. This is a good thing, because it teaches good repayment habits and helps to establish a positive payment history a very important part of rebuilding damaged credit. If a secured cardholder does default on a payment, the card issuer is protected; they can recover their loss by taking it out of the cardholders deposit account.
Critics of secured credit...
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