How Are Prepaid and Secured Credit Cards Different?

Credit cards can be very helpful tools to help enhance your travel game. Between lounge access, elevated earning rates, and welcome bonuses, credit cards are one of the best ways to help meet and exceed your travel goals.

As amazing as credit cards and their attendant perks can be, not every person meets minimum income requirements for mid-tier or premium cards, and other folks may just be getting back on their feet following an unfortunate financial pitfall. 

For anyone feeling affected by the aforementioned issues, the good news is that there are some great alternatives in the form of prepaid and secured credit cards.

But what are the differences between the two, and which might be best for your travel or cash flow goals? Let’s take a look.

What Are Prepaid and Secured Credit Cards?

Before delving any further, let’s first establish what prepaid and secured credit cards actually are, and why they have slightly different rules which govern them.

First up, let’s cover prepaid credit cards.

As the name might suggest, a prepaid credit card is prepaid. This means that you need to deposit or load your own funds onto your card in order for it to work, and you can’t expend funds past those which are loaded onto the card.

Secondly, prepaid credit cards work almost identically to credit cards: they use the Visa or Mastercard payment networks to process transactions, which means that you have the same accessibility and most of the same protections against fraud as regular credit card users.

However, this also means that you can’t use prepaid credit cards at merchants that only accept debit, such as when paying tax to the Canada Revenue Agency directly.

Thirdly, prepaid credit cards are unsecured outside of the funds which you choose to deposit. You don’t need additional collateral to open a prepaid account, and so they also have no specific credit score requirements.

This also means that prepaid cards don’t count toward building credit history with the major credit bureaus, which is an important factor to consider if you’re working on building your credit score.

On the flipside, you have the option of looking into secured credit cards. Whereas prepaid credit cards can be opened by anyone and don’t require you to retain a minimum balance, a secured credit card requires a cash deposit in order to open…