Your Guide to Unsecured, Secured, and Prepaid Credit Cards

Unsecured, secured, and pre-paid credit cards: you may be thinking to yourself, ‘wait, there is more than one type of credit card?’ Yes, there are three distinctly different kinds and each has its own benefits depending on your personal financial situation and long terms goals. If you’re in the market for a new card, we’ve provided a comprehensive mini-guide below for you to figure out which one fits your needs. American’s are averaging $5,700 in credit card debt, so even if you’re not in the market, it’s still important that you know what you have and what is out there, so let’s dig in!

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Unsecured Credit Cards

When you think of credit cards, an unsecured credit card is likely the type that you think of as this is the most commonly used kind out there. Most simply put, you find and apply for a credit card through a reputable financial institution, whether that be a credit card company or a bank, and they will assess your lending habits and debt to income ratio before determining what your credit limit and annual percentage rate (APR) will be. The transaction process from here is pretty straightforward: you make purchases on your credit card, and then will either pay a monthly minimum or pay off your card on a monthly basis. With an unsecured credit card, you are subject to late fees and penalties. There are also benefits and perks to these types of cards as well such as airline miles and cashback options depending on the terms that you sign up on.

On the downside, depending on your credit, you may have a low limit or a high APR. However, companies like Credit Card Connection offer cards specifically for low credit scores.

Secured Credit Cards

A secured credit card is a fantastic way to improve your credit score, whether you be young and ready to build your credit from the ground up, or if you have gone through rough financial times and are ready to recover the credit score that you once had.

The concept here is that once you choose your lender, you will make a deposit in a saving account for the credit card.

The amount that you deposit will be your credit limit on your card, so you’re essentially creating collateral by putting money away and then using your credit card and making monthly payments on the card as you would with an unsecured credit card. You may be wondering what happens with that money that you put into the ‘savings account.’ This is essentially set aside in the event that you keep up with your credit card payments, but be warned, if this latter situation comes into play, your credit score could be negatively impacted, so be sure to make your payments on time. Some other considerations to take into account are the annual fees that are associated with some of these cards; make sure to read the terms before picking your card.

Pre-Paid Credit Cards

Lastly, let’s discuss pre-paid credit cards. These are the cards that you commonly see in your local markets; however, you can compare and pick the best one online. It is a credit card that you pre-load with funds and then spend with until you need to refill it again. This can be beneficial for making online payments, or for paying bills. While similar to a secured card, the main difference is that with pre-paid cards, you are not building your credit, so depending on your long term financial goals, you may want to consider going the secured route.

While these three types of cards are drastically different, they all have a purpose and benefit depending on the season of life that you’re in. Once you educate yourself on your options, you can then find a lender and start using your credit card with confidence that it will help you meet your goals!

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