Credit cards provide an identity to individuals with respect to their financial status as people look upon credit card holders as responsible entities to transact with. Perhaps this is the reason why credit cards are the most accepted method of payment when you rent a car or book a hotel or for making any other types of payments. The inconveniences of transacting in physical currencies or cash is now a thing of the past as almost everyone is using credit cards and debit cards considered as plastic money. When you are holding a credit card, it gives you complete confidence in taking life as it comes because you need not worry about money that is now available anytime, anywhere. However, there is a capping of the available credit, but then there is a limit to fund availability even if you are using a debit card.
Unsecured credit cards are most common
Credit cards are usually issued without asking for any security, and this is the most common type of credit card that we come across known as unsecured credit cards. It does not mean that whoever applies for an unsecured credit card will get it. The credit score of the individual plays a role in issuing such credit cards because the credit companies and banks do a background check of its prospective customers to judge their creditworthiness before issuing a credit card. Since the credit card companies do not ask potential customers to furnish their credit score at the time of applying for the card, customers are often not aware that the credit score influences the decision of the credit card issuance.
Secured Credit cards for people with a poor credit score
Customers whom the credit card companies feel less reliable as borrowers would find it difficult to get unsecured credit cards and must apply for secured credit cards by depositing some collateral security. In this way, banks and credit card companies protect their interest and stay completely secured if the credit card holder falters on making payment. Regardless of the type of credit card, secured or unsecured, users can make good use of it to build positive credit score by being more disciplined in making payments of credit card bills on time. However, the credit limit of secured credit cards is equal to the deposit made whereas for unsecured cards it is usually much higher. Besides these two types of credit cards, there is a third type of card available known as pre-paid cardsthat are like debit cards.
Pre-paid cards behave in the same way as other credit cards as it is an acceptable substitute for a cash payment, but there is a difference in the financial arrangement in the manner the credit card companies make money available to users.
Credit cards are nothing, but lines of credit established in the names of individuals that allow them borrowing money against the cards whenever they make a commercial transaction for purchasing some products or service. Users must pay back the borrowed sum either in full or part against the monthly credit card bill and can enjoy interest-free credit for a specified period. Beyond the interest-free period, they must pay interest on the outstanding amount.
Things are different with pre-paid cards because users must load money on the cards first and then start spending. It means, pre-paid card users are using their own money, but instead of paying it in cash they are using the card. It is difficult to make out pre-paid cards from other credit cards because all cards look the same.
Except that the different types of cards differ in technicalities, users do not find any difference when using it.
Prepaid cards provide more payment options
Pre-paid cards are in no way connected to borrowing money and are just only another variant to many different types of cards used for making payments. Pre-paid cards give users more options in making payments, but little does it help to make some additional cash available like credit cards. Remember, that you are spending your own money provided you have the money loaded on the card, but with credit cards, money comes to you even when you do not have any money in your bank or pocket. Pre-paid cards are more for convenience in making payments rather than helping you with funds.
Prepaid cards are like debit cards
Pre-paid cards are like debit cards in that both cards are useful only when it has money loaded on to it. Debit cards have a link to a specific bank account, and the card is just a medium for making payment from that account. As soon as you swipe the debit card at any POS or point of sale, the money goes out from your account immediately.
For pre-paid cards, there is no link to banks because you have already loaded money on the card that you are spending. It means that money had already gone out from your bank account when you transferred money to the card, and it is that money that you are spending.
When debating about prepaid credit cards vs debit cards, the above information should come in handy.
Pre-paid cards are more flexible
Prepaid cards offer more flexibility than debit cards because debit cards have a link to a specific bank account and if you do not have money in that account you cannot use the debit card. On the other hand, pre-paid cards do not have any dedicated link to any specific bank account. Instead, you can transfer money to pre-paid cards from any bank account which means that pre-paid cards behave like wallets in which you put in money and keep spending. The cycle of topping up pre-paid cards and spending continues as long as you want to use the cards.
Pre-paid cards are as good as cash in your pocket and in no way connected to the credit system which means that it does have any credit effect and hence does not help to build or improve your credit score. Only credit cards and help you to do that.