Secured, unsecured and prepaid credit cards are generally targeted to those of us that have 'less than perfect credit'. This ubiquitous industry catch phrase basically means that 1. you have a bad credit score or 2. you have no credit score at all (i.e. teens, recent U.S citizens, etc.). So, what's the difference between the three, and which one is right for you? Let's take a closer look.Secured Credit Cards
A secured card is much like a debit card. Your credit line is equal to the amount of cash you deposit into the account. So if you make a $500 deposit on your secured card, you'll be able to use the card up to $500 (minus any annual or additional fees the card issue may charge you).
Secured cards typically report your payment transactions to the 3 major credit bureaus, so you have a way to show you are making payments on time. This will result in a higher credit score over time and the ability to eventually get a regular loan or credit card.
Some current examples of secured cards are the Applied Bank™ Secured Visa®, Bank of America Secured Visa® Platinum Card, Orchard Bank Secured MasterCard® and New Millennium Bank Secured Platinum Visa® or MasterCard®.
Pros:
* Good for rebuilding or establishing credit
* Allows for online shopping (and possibly online bill paying)
* Allows for use of most ATM machines
* Reports to the major credit bureaus
* Pre-set limit keeps you from going over the limit
* Peace of mind when traveling, etc. that you have a card as opposed to carrying cash
Cons:
* Possible high monthly/annual fees
* Possible high interest rate
* Possible nickel and dime you to death with additional fees
Unsecured Credit Cards
An unsecured card is essentially a pre-approved loan, with interest rates higher than a similar personal bank loan. An unsecured card is generally issued to those who have a fair or even bad credit history but have demonstrated some ability to repay accrued debts. Credit limits are determined on an individual basis, and may be raised or lowered based on performance.
Those of you with fair credit scores, this option may be for you. It is basically like getting a bank loan, but you have the convenience of a credit card tied to the loan for purchasing, etc. Those of you with really bad credit scores - forget this one, and focus on an unsecured or prepaid card instead.
Some current examples of unsecured cards are the Continental Finance Gold MasterCard®, Salute® Visa® Gold Card, Total Visa® Card and Tribute® Gold MasterCard®.
Pros:
* Good for rebuilding or establishing credit
* Allows for online shopping (and possibly online bill paying)
* Allows for use of most ATM machines
* Reports to the major credit bureaus
* Many cards let you apply online and get your decision in seconds
* Peace of mind when traveling, etc. that you have a card as opposed to carrying cash
Cons:
* Possible high monthly/annual fees
* Possible high interest rate
* Possible nickel and dime you to death with additional fees
Prepaid Credit Cards
Prepaid cards function just like credit cards in nearly all aspects, but you have to pay the spending limit up front. It's like a prepaid phone card you can use to buy anything.
The most obvious benefit is that you can't go over your limit. The most obvious down-side is that most prepaid cards require a start-up or activation fee. In general though, they are still excellent cards for those of us that need the convenience of a card - yet still have that pesky 'less than perfect credit'.
Some current examples of prepaid cards are the AccountNow® Prepaid MasterCard®, All-Access® Visa® Prepaid Card, Baby Phat Visa® RushCard™ Prepaid Card, BuyRIGHT Prepaid MasterCard®, Eufora Preferred Credit Builder Prepaid MasterCard®, RushCard™ Prepaid Visa® Card, UltraVX Visa® Prepaid Card and theWired Plastic Prepaid Visa® Card.
Pros:
* Typically don't require credit or employment check to apply
* Allows for online shopping (and possibly online bill paying)
* Allows for use of most ATM machines
* Possible reports to the major credit bureaus
* Pre-set limit keeps you from going over the limit
* Peace of mind when traveling, etc. that you have a card as opposed to carrying cash
Cons:
* Possible high start-up/activation fee
* Possible high monthly/annual fees
* Possible nickel and dime you to death with additional fees
Conclusion
For those of us with 'less than perfect credit', a secured, unsecured or prepaid credit card may be the answer. Any of these cards will certainly give the flexibility of having a card to shop online and give peace of mind by not having to carry cash anymore. A few of these options will even help you rebuild or establish your credit. The key is to read the fine print and not apply for a card that is going to charge excessive fees.
Michael Gracen is the founder of Loud Market (http://www.loudmarket.com), a credit card review web site. Loud Market offers consumers recent, unbiased and free reviews of 200+ cards in order to help them make intelligent decisions before applying for a card.
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Prepaid Credit Card
