Which is better for a college student: a prepaid credit card or a secured credit card? | CreditShout

Which is better for a college student: a prepaid credit card or a secured credit card?

By Kevin / August 10, 2009


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Creating a good credit history while you attend college is a great decision because it will help you get credit and a job after you graduate. There are two popular options for students going away to college. The first is a prepaid credit card, which is more like a debit card than a credit card. The second option is a secured credit card, which requires a deposit that will be equal to your credit limit. So which is better for you as you set out to establish a credit history? Here’s the answer.

Prepaid credit cards are reloadable and are designed to primarily control your spending. They allow you to deposit a set amount and–like a debit card–when the money stops, so does the spending. Prepaid credit cards require no credit check and are made for overspenders. Unfortunately, these “credit cards” don’t actually establish or help a credit score because they aren’t really credit. Credit is like a loan, whereas prepaid credit cards work only with the deposit you make yourself.

Secured credit cards, on the other hand, allow you access to a real credit card because you’ll make a deposit into a bank-held savings account that will be equal to your credit limit. For example, if you deposit $500, your secured credit card will have a $500 limit. Secured credit cards report to all major credit bureaus and can be one of the best ways to establish and fix your credit. Be sure to watch out though as some secured credit cards charge unneccesarily high fees and penalties. Here’s a look at two secured credit cards on the market:

Orchard Bank Classic Mastercard

  • Application fee: None
  • Annual fee: $35, waived the first year
  • Account maintenance fee: None
  • Credit limit increase fee: None
  • APR: 7.90%
  • Minimum deposit: $200

Continental Finance Classic Mastercard

  • Application fee: $200
  • Annual fee: $50
  • Account maintenance fee: $15 per month, or $180 per year
  • Credit limit increase fee: $25
  • APR: 19.92%
  • Minimum deposit: None

As you can see, it pays to compare secured credit card offers. All secured credit cards target people with no or bad credit so why pay over $400 in fees when you don’t have to?

When it comes to picking a credit card to take  with you to college, your best pick is a secured credit card. While you’ll have to pay up for the deposit, don”t worry! That money will accrue interest and be given back to you if you ever close the account. Secured credit cards will give you a great start to building a positive credit history that will serve you your whole life. Prepaid credit cards, however, do not build credit but give you an excellent way to budget your money and stop overspending. Choosing between a prepaid credit card and a secured credit card is easy when you understand the facts.

Here are some more helpful articles on college students, secured credit cards and prepaid credit cards.

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