How To Get Credit When You Don't Have Any Or Your Credit History Is Bad

Secured Credit Cards and Prepaid Credit Cards are similar to each other. Both work the same way in that you put up money before you can use them.  Both can be used in the same places that credit cards can be used.

Both have the same theft and loss protections as a credit card. If you report a loss or theft of a registered card to the issuer, most will restore your original balance and issue a new card. The money in a bank account is insured by the FDIC up to $250,000.

Yet, there are significant differences which are noted below.

SECURED CREDIT CARDS

A secured credit card is a credit card for which repayment is guaranteed by cash you leave in an account with the credit card company. If you don't pay the debt as due, the credit card company can pay itself from the asset it is holding as security.

Typically:

• Legitimate secured card companies will request you to open a bank account or purchase a CD. Your credit on the card will match the amount in the account or CD.
• Secured credit cards involve a credit check.
• Limits on secured credit cards can be set by the bank or you but are limited by the amount of money you put up. 

Once you start using a secured credit card, purchases go against your credit limit. You receive a monthly bill. Until the bill is paid, the amount of your credit is lowered by the amount you didn't pay. As soon as you pay, the credit limit is topped off again- just like a regular credit card.

Shortly after you begin using secured credit cards and have a positive payment history, it is likely that you will begin receiving offers for the more traditional credit cards (even if you have a negative credit history or bankruptcy).

Issuers of secured credit cards typically report to all three credit reporting agencies, helping you build or rebuild credit.

Fees for a secured card are similar to those of a typical credit card. Fees can include an application fee, an annual fee, a finance chage and a late fee.

PREPAID CREDIT CARDS

Prepaid credit cards are considered to be prepaid debit cards that carry an American Express, Discovery, MasterCard or Visa logo. They can be used anywhere credit cards from these companies can.

Prepaid cards can be purchased from national chain stores or from the Internet. Prepaid credit cards do not require a credit check.

Despite their name, these cards are not really credit cards. There is no credit limit for a prepaid card. You make a deposit onto the card and it goes into an account. When you swipe the card for purchases, the amount is deducted from your balance. Once you spend all of your deposit, you must redeposit money before you can spend again.

The limit on a prepaid card is determined by how much you load onto the card. 

Issuers of prepaid cards do not report to credit bureaus because you aren't paying back borrowed money.  Because there is no credit, this kind of card does not affect your credit rating. 

Some prepaid cards are free. Otherwise fees range from moderate to high. Fees can include: activation fee; monthly maintenance fees for each montht he account is open, a fee to reload money onto the card, to withdraw money from an ATM, or to use bill pay. There are no interest charges or late fees with a prepaid card.

WHICH CARD WORKS FOR YOU?

Secured Credit Card

• A secured credit card can improve your credit score. If this is your goal, make sure that the issuer reports to the three major credit bureaus.
• If you are looking for an unsecured card, some credit card issuers will convert your secured credit card to an unsecured one after a periof of on time payments - such as 12 to 18 months.

Prepaid Credit Card

• A prepaid card works for people who can’t get a checking account or want to avoid banks all together. 
• Many employers can direct deposit your paycheck onto a prepaid card and some prepaid cards even let you send a few checks each month or enroll in online bill pay. 
• Prepaid cards are good for teenagers and students who get an allowance from parents. They cannot spend beyond the loaded value. 

TO FIND SECURED AND PREPAID CREDIT CARDS

For a list of companies that issue secured credit cards, see: bankrate.com . On the top navigation bar, click on "credit cards." Then click on "find a credit card" by type. In the pull-down, either click on Secured Credit Cards or Prepaid Credit Cards.

NOTE: Check the fees and other aspects of a card you care about before moving forward. For instance:

• Can you withdraw cash from an ATM? (If so, you will be sent a PIN number)
• Can you pay bills online?
• Can you st up payments for recurring monthly bills?
• How can money be reloaded? (For example, aside from your adding cash, can you transfer money from a bank account or financial institution? ACan your employer direct-deposit your paycheck? Can you transfer money from a PayPal account? Can you reload the amount in a retail store such as Wal-Mart?
• What are the fees? (If there is a monthly fee, the money can be gone over time even if you don't touch it).

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