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Benefits of secured credit cards

The wide variety of credit card offers can perplex the user. Particularly for those trying to build or improve their credit records. It can be a challenge to make the right choice. And to make the matter worse, selecting a wrong credit card offer can have a big impact on your efforts to build good credit.

Two types of credit cards are most widely used:-

  • Secured credit card
  • Prepaid credit card


Which one is better, Secured credit card or prepaid credit card?

  • Both of them have their own favourable and unfavourable factors.


Secured credit cards work much like a regular credit card, but with one big exception. Before using the card, a security amount should be deposited as collateral. The issuer then holds the security deposit for recovery of future card payments. That security deposit is used to limit the risk for credit card company, in case one cannot pay the monthly dues.

With Prepaid credit cards, a fund must be deposited before using the card. But unlike Secured credit cards the issuer does not hold the deposit as security for future payments. Each transaction or withdrawal made by using the card reduces the balance, which is placed on the card. A Prepaid card is very much similar to a bank debit or ATM card.

Advantages of using Secured credit cards:-

A Secure credit card will definitely help if one wants to improve the credit score. In fact, for people who have recently gone through bankruptcy, foreclosure or any other major financial hardships, a secured credit card may be one of the ways to begin restoring your credit. Secured cards work like conventional credit cards and while most of the credit card companies report to all the three major credit card bureaus. Generally, within the first six months of responsibly using a secured card, user will begin building credit or see a difference in the credit score. If a user misses or defaults a payment, the down payment will cover the bill so user’s account won’t head straight for the collections department. Recent immigrants can easily get approval for a secured card. A few credit card companies provide interest on the security deposit. So there is an option to earn few bucks on the deposited amount. The initial deposit is insured by FDIC and refundable, after applicable fees, if the user decides to close the account. Secured cards look exactly like regular credit card. There is nothing on the card which indicates that it is different, nor will merchants know that a credit card is secured while they are obtaining authorisation for a purchase.

When choosing a secure card, it is a key that user should choose one with a grace period. A grace period is the window of time, often between the end of the billing cycle and due date for that cycle. In this grace period, no interest needs to be paid.

Most secured credit cards are accepted as a form of payment while travelling abroad. Some charges will be applicable in internationally accepted secure cards. They are available through large well-known banks including Bank of America, Wells Fargo, Chase, Capital One etc.

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