What is a secured credit card and how does it differ from regular credit cards and prepaid cards?
A secured credit card is an option for a person to build or rebuild his or her credit. Furthermore, a secured credit card provides the opportunity for consumers to gain access to certain services such as renting a car or hotel room. Secured credit cards differ from traditional credit cards in that a deposit is required to serve as the consumer’s credit line whereas with traditional credit cards, the consumer’s credit line is collateral free and based partly upon their credit and payment history. Secured credit cards differ from prepaid credit cards as well. With prepaid cards, there is no required credit history check and the consumer’s credit line is limited to what the consumer has previously paid, or loaded, on the credit card. On the other hand, a secured credit card requires its user to open a savings account which will serve as his or her credit line. The consumer will then continue utilizing the secured credit card as a traditional credit card; in the event the secured credit card user defaults on his or her credit card payment, the user’s savings account will be used as collateral.