What’s the difference between prepaid cards and secured credit cards?

Hey I'm Adam Jusko from ProudMoneycom and in this video we're going to talk about what the difference is between a prepaid card and a secured credit card

Had someone ask me about this recently, sometimes people get confused on what each of those is and how they are the same and how they differ — mostly they differ But before I do that I'd ask you to please subscribe to our YouTube channel if you've not already and if you have I thank you for doing so So, like I said, someone had asked me recently, what's the difference between a prepaid card and secured card They basically thought that a secured credit card was the same as a prepaid card and they're actually very different, so we're going to talk about what those differences are Let's talk about prepaid first

A prepaid card some people say "prepaid credit card" and it's really not a prepaid credit card because there is no credit involved so this may be a Visa, Mastercard or American Express on the outside but what it is is essentially a debit card You are loading money into an account and when you use it, that money is coming out of the account You're not getting a loan, there's no credit involved It's your money being put on a card and then you're using it just like any other debit card, right? It's really sort of something that you use for convenience, in order to be able to not carry as much cash, to be able to use it on the Internet or by phone or even at retail stores, that's really what a prepaid card is for

A lot of times people get prepaid cards if they don't have a banking relationship or for whatever reason they have a bad previous banking relationship and are having a hard time getting a checking account That is how that happens So a prepaid card you either can fund it online sometimes, sometimes it's through retail stores, a lot of them will allow you to direct deposit your paychecks onto your prepaid card So all those are ways that the money can get on there, but no matter how you slice it, you are taking your money, putting it on the card and then spending it So it's essentially like cash, it's just the mechanism for making the payment

Now because it is like cash, there's a little safety concern there You have to hold on to that prepaid card or someone else if they get their hands on it could then use that card and use all the money that you have put on to it But, bottom line, it is a debit card You do not get any sort of there's no sort of credit aspect to it You're not taking out any sort of loan, and if you're someone that has credit problems or you're hoping to build your credit, a prepaid card is not going to do it for you It's really a convenience and a different way to use your money Now a secured card is very different

Again, this is a Visa Mastercard or Discover card, but it's essentially the same as any other credit card in terms of how you use it You get the credit card, you can make your purchases up to your credit limit, and then each month you pay off the card The big difference is that you have to put down a security deposit in order to get the card So say you put down a security deposit of $300 Now they may give you a credit line that is the same as that security deposit, but that money is not being taken out of your security deposit in order to pay the bill

So it is not like a prepaid card in that way That security deposit sits off to the side It's the same thing as if you had a security deposit on an apartment — you give them money in case there's damages and when you move out they give it back to you, assuming that you've done everything you're supposed to Same with a secured card — you give them money up front to "secure" that card You use it in the way that you're supposed to, and provided that you've paid everything off by the time you no longer want that secured card

because you've got a better credit card or for whatever reason assuming you've paid everything off, you get that security deposit back So you never are paying out of that security deposit for your monthly purchases, you're using it just like any other credit card Now the big upside to this you might say "well, why would you want that?" Right? Because I give you a security deposit just to use a credit card that I can pay every month? That doesn't make sense to a lot of people But the big difference, or the big reason that you want this, is because it does help you build credit You are being given a loan here, you are getting credit You may have put down a security deposit, but because you're not paying out of that security deposit, you're not it's not a debit situation You are actually building credit when that credit card reports to the credit bureaus — assuming of course that you are making all your payments when you're supposed to Your credit is being reported I assume that's you building credit because you're doing everything right

If you do everything or something's not right, you may not be building credit, you may be making your credit no better than it was to begin with But the point behind a secured credit card is to help you to build credit, and that security deposit is just sort of a safety for the bank in case you don't pay your bills

But assuming you pay your bills — and I'm sure you will — if you have a secured card or if you get one in the future, you will get that security deposit back when you are either upgraded to a regular unsecured card or you just don't want the secured card for whatever reason But again, the big difference: the prepaid cards is essentially a debit card, it's your money on there and it's just being debited off as you use it There's no credit aspect, you're not building your credit score Secured credit card you're putting in a security deposit, but that's not touched when you make your payments and you are building credit, assuming you make your payments on time So hopefully that makes sense

If you have any questions, please put them down in the comments below and I would be happy to answer them Thanks for watching Please go to ProudMoneycom where we do other credit card reviews and personal finance news and other fun stuff too Thanks for watching