The term “prepaid credit card” is basically nonsensical. Prepaid cards are not credit cards. They do not provide lines of credit, and information about their use is not reported to the major credit bureaus. Still, they are widely referred to as prepaid credit cards and, in a lot of cases, are mixed in with credit card offers —facts which beg the question: Why? Why when you type the word “prepaid” into a search engine, does “prepaid credit cards” pop up as a suggestion instead of “prepaid cards?”

Many people simply don’t know exactly what a prepaid card is, and since it’s plastic, they just lump it into the credit card family. However, a prepaid card is basically just a debit card for people who do not want a checking account from a traditional bank or cannot qualify for a checking account because of mistakes made in the past—bouncing checks, for example. Before using a prepaid card, money must be loaded through direct deposit or at a retail location, and obviously there is no bill to pay at the end of the month. Prepaid cards can be used to pay bills, deposit paychecks, make purchases and withdraw money from ATMs. In short, they can do anything a checking account can—with the lone exception being the ability to write paper checks.

A person is considered new to credit if they have had their own loan or credit card for less than 3 years (or have never had one at all). For example, if you are a college student, new to the country, between the ages of 18 and 21, or recently divorced with no credit under your name in the past 10 years, it is highly likely that you have limited or no credit history.

Keep in mind that even though you fit the definition of limited credit, you may not qualify for an unsecured credit card if you have mismanaged the little credit that you have. If you have missed payments on credit cards, loans, utilities bills, or anything else that is reported to the credit bureaus, applying for a secured credit card is probably your only option.

Secured credit cards are designed for people with bad, limited or no credit history and use a security deposit that doubles as a credit limit to protect issuers from what are considered to be risky customers. If you do not have an outstanding balance at the time you decide to close your secured credit card, the entire security deposit is returned to you. Because issuers incur little risk with secured cards, these products typically also have low fee structures and minimal requirements for approval. All you generally need to do to open a secured credit card is provide a valid Social Security Number (SSN) and, of course, place the refundable security deposit.

Using a secured credit card is ultimately a great way to cost-effectively build or rebuild a solid credit history since secured cards report to the major credit bureaus in the same manner as any other credit card. In fact, no distinction is made between secured and unsecured credit cards on a credit report. Finally, since you can add to your deposit over time and thereby increase your spending limit, a secured card can also provide all the spending power you might need.

Your secured credit card’s security deposit is ultimately a matter of personal preference. Secured credit card issuers generally require a minimum deposit of around $200 and allow you to put down as much as $5,000 or $10,000, but the exact amount is up to you. The reason for this is that your security deposit acts as your credit limit, which ensures both that your issuer will get paid back and that you cannot spend beyond your means.

There are a few of important things to be aware of when deciding how much to deposit. First, as mentioned, the amount of your deposit will be your credit line, so you need to deposit at least as much as you wish to spend per month. Second, your credit score will benefit from low credit utilization—your monthly balance compared to your credit line—so it’s a good idea to only spend about half of your deposit amount each month. Third and finally, your credit score will also benefit from a high absolute amount of available credit, so deposit as much as you can now in order to get positive information flowing into your credit report and add to your deposit over time.

You don’t need a co-applicant to get approved for a secured credit card.  A secured credit card will help you build credit history with low risk to both you and your lender.  The only difference between a secured card and a regular credit card is that with a secured card, your credit limit matches the amount of the deposit you put down – this usually starts around $200.00.  This deposit acts as your collateral.  Your credit limit can be as little or as much as you choose – you can increase your limit by simply adding more to the amount that you initially deposited.  The great thing about a secured credit card is that it can act as a personal savings account while building your credit history at the same time.

Yes.  If you want a 100 percent guarantee that you will be approved, apply for a secured credit card.  A secured credit card will help you build credit history with low risk to you.  Secured credit cards work just like regular credit cards and are also reported to the three major credit bureaus.   The only difference between a secured card and a regular credit card is that a secured card requires a security deposit and your credit limit matches the amount of the deposit you put down – the minimum is $200.  Your credit limit can be as little or as much as you choose – you can increase your limit by simply adding more to the amount that you initially deposited.  The great thing about a secured credit card is that it can act as a personal savings account while building your credit history at the same time.

If you don’t have a credit history and want a 100 percent guarantee that you will be approved, apply for a secured credit card.  A secured credit card will help you build your credit history with low risk to you.  Secured credit cards work just like regular credit cards and are reported to the three major credit bureaus.   The only difference between a secured card and a regular credit card is that with a secured card, your credit limit matches the amount of the deposit you put down – this usually starts around $200.00.  Your credit limit can be as little or as much as you choose – you can increase your limit by simply adding more to the amount that you initially deposited.  The great thing about a secured credit card is that it can act as a personal savings account while building your credit history at the same time.

Yes.  You most certainly can.  Transactionally, prepaid cards work the same as debit cards or credit cards.  However, if you are planning on using a prepaid card to cover the expense of a subscription that requires a monthly payment, be sure that you determine the date on which the payment will be deducted from your prepaid account each month.  You will need to ensure that you have enough money on your prepaid card, on or before the date that the payment for your subscription is due.  Otherwise, your payment will be declined and your subscription will likely fall into jeopardy.

In most cases, no. Some car rental companies accept debit cards, but beware they are likely to put a hold on your card that is much higher than the price of the car rental. With a debit card this means less access to cash for you. If you need to rent a car and don’t have a credit card, you can apply for a secured card if you have enough lead time before your trip. Secured credit cards work just like regular credit cards and are reported to the three major credit bureaus. What separates them from regular credit cards is that they require a security deposit – usually starting at around $200. If you have a debit card, but don’t have enough time to apply for a secured credit card, be sure to contact the rental company to find out how much of a hold they require. Then be sure the available balance on your debit card account is enough to cover the rental reservation.

There are a few things that separate debit cards from credit cards.  A debit card is linked to your personal bank account, and as soon as you make a purchase with a debit card the money is immediately withdrawn from the account associated with it.  There is no bill at the end of the month.   When you make a purchase with a credit card, you are simply lowering your amount of available credit, and you will receive a bill at the end of the month for which you are responsible.  Lastly, the activity on a credit card shows up on your credit report, but the activity on debit card does not.  

Prepaid cards are a good option if you don’t have a personal checking account.  You can build up your available balance on your prepaid card simply by making cash deposits at most major grocery stores and gas stations.  A prepaid card works a lot like a debit card – once the money is gone, it’s gone.  A prepaid card will not allow you to charge over the available balance and there are no bills or interest fees.

You can use a prepaid card to buy things off of the Internet if you don’t have a credit card. With a prepaid card, you will not receive an itemized bill, unless you request one, and the account associated with the card will not show up on your credit report.  You can build up your available balance on your prepaid card simply by making cash deposits at most major grocery stores and gas stations.  A prepaid card works a lot like a debit card – once the money is gone, it’s gone.  A prepaid card will not allow you to charge over the available balance and there are no bills or interest fees.

Debit cards are as widely accepted as credit cards and transactionally, they work in a similar way.  However, there are a few things that separate debit cards from credit cards.  A debit card is linked to your personal bank account. As soon as you make a purchase with a debit card, the money is immediately withdrawn from the account associated with it.  There is no bill at the end of the month.   When you make a purchase with a credit card, you are simply lowering your amount of available credit, and you will receive a bill at the end of the month for which you are responsible.  Lastly, the activity on a credit card shows up on your credit report, but the activity on debit card does not.

If you don’t want to worry about carrying a lot of cash around with you, a debit card is a great option.  Alternatively, prepaid cards are an option if you don’t have a personal checking account.  You can build up your available balance on your prepaid card simply by making cash deposits at most major grocery stores and gas stations.  A prepaid card works a lot like a debit card – once the money is gone, it’s gone.  A prepaid card will not allow you to charge over the available balance and there are no bills or interest fees.