secured credit cards and prepaid cardsWhile this information was accurate at the time this post was published, these cards’ offers and perks may have expired or changed over time. Visit our reviews of the best credit cards to find the right card for your needs.

When it comes to credit cards, there are many different types to choose from. While a number of people opt for travel rewards credit cards and others prefer cash back credit cards, the unfortunate reality is not everyone qualifies for a rewards credit card. Regardless of the reason why you don’t qualify — you may not have established credit or there could be some negative marks on your credit history — the good news is that secured credit cards and prepaid cards are available to everyone, even those with bad credit. To help you get a better understanding of what these cards are and how they work, we break down everything you need to know.

What are secured credit cards?

Secured credit cards look and act just like regular credit cards, except they function a little differently. When you open the account, you’re required to put down a security deposit to guarantees your credit limit. This security deposit serves as collateral and will be used if you fail to make payments to the card. The amount of the deposit, which often ranges from $50 up to $5,000, is usually determined by your issuer and based on your credit history and for most cards, the amount determines your line of credit. For example, if your security deposit is $300, your line of credit (or spending limit) will be $300. When you close out a secured credit card, you’ll receive your security deposit back (assuming it wasn’t used to cover missed payments). While you may not be too pleased with the idea of putting down money to open a credit card, there is one aspect of secured cards that is really appealing — the majority of them report to all three credit bureaus (TransUnion, Experian and Equifax). Traditional credit cards only report to one or two of the bureaus, which means if you use a secured card responsibly, you can build a positive credit history a lot faster than you would with a traditional credit card.

What are prepaid cards?

Prepaid cards are very different than secured credit cards. While prepaid cards require you to put down money like a secured card, they are not a credit card at all, which means they do not have any impact on your credit reports and scores. Unlike secured credit cards, there is no credit check required to get a prepaid card and you don’t need a minimum balance to use one. Prepaid cards function similarly to a debit cards (note that they are not bank accounts) because they are reloadable, which means you can only spend what you deposit on the card — it’s not borrowed money. Most cards don’t charge a set-up fee and the ones that do charge around $5, but a number of prepaid cards have monthly fees that range from $1 to around $10, depending on the card. Prepaid cards are also branded (or issued) by major payment networks, like Visa, Discover, American Express and MasterCard, so you can use them anywhere the brand is accepted, including retail stores and online.

Which is the better option for me?

Deciding between the two options comes down to what your long-term goal is.

Looking to build credit? Choose a secured credit card.

If your goal is to build a positive credit history, you’ll want to consider a secured credit card because, as we detailed above, most secured cards report to all three of the credit bureaus. Secured credit cards are also great options for those with no credit history (e.g., college students) as well as those who have had credit issues in the past and are looking to rebuild their credit. If you make your secured credit card payments on time every month, you can rebuild your credit rather quickly and eventually qualify for an unsecured credit card. Not sure which secured credit cards are worth their salt? Here are some of the top options.

Discover it Secured

secured credit card and prepaid cardLooking for a unique secured credit card that not only charges no annual fee, but also earns you cash back rewards? If so, the Discover it Secured card is for you. With this card, you’ll earn 2% cash back at restaurants and gas stations (on up to $1,000/quarter in combined purchases, then it’s 1%) as well as 1% cash back on all other purchases. But the rewards don’t stop there because at the end of your first year, Discover will actually match all the cash back you’ve earned, meaning if you’ve earned $300 throughout the year, it’ll double that and give you $600 back! The security deposit required for this card ranges anywhere from $200 to $2,500, and as with most secured credit cards, it reports to all three credit bureaus. This card also has no annual fee, as you likely guessed from the name, and provides you with a free TransUnion FICO credit score on every monthly statement and online, which is a handy way to keep track of your progress.

Capital One Secured MasterCard

secured credit card and prepaid cardAnother great secured credit card that charges no annual fee is the Capital One Secured MasterCard. Although it doesn’t offer cash back rewards like the Discover it Secured card, it is a straightforward secured credit card for anyone wanting to keep it simple. When you first open the card, a security deposit of $49, $99 or $200 will start you with a credit line of $200, which has the potential to increase once you’ve made your first five monthly payments on time. Since the Capital One Secured MasterCard reports your payments to all the three of the major credit bureaus, your credit standing has the opportunity to improve over time with responsible use of this card.

OpenSky Secured Visa Credit Card

secured credit card and prepaid cardIf you’d prefer a Visa-branded secured credit card, you’ll want to consider the OpenSky Secured Visa Credit Card. Although it has a $35 annual fee, no credit check is required for approval, which is ideal if you really bad credit. Security deposits range from $200 to $3,000 and you could increase your credit line to up to $5,000, subject to approval. Similar to the other secured credit cards detailed in this blog post, the OpenSky Secured Visa Credit Card reports to all three major credit bureaus.

If credit is not a factor, a prepaid card is the way to go.

If you’re looking for a way to manage your budget and limit your spending amount or simply want an alternative to carrying cash around all the time, using a prepaid card may be the way to go. Although prepaid cards tend to have a handful of fees, unlike credit or debit cards, they don’t have the strict federal regulations associated with debit cards and credit cards, so anyone is able to get one — even if you’re unable to open a bank account or qualify for credit cards. These cards are also beneficial for parents who want to teach their kids how to budget while still being able to monitor their spending habits and avoid going into debt or racking up enormous credit card bills. Whatever the reason you opt for a prepaid card, here are some of the top options to choose from.

American Express Serve Cash Back

secured credit card and prepaid cardAmerican Express Serve Cash Back (a NextAdvisor advertiser) is great prepaid card that charges no set-up fee and actually earns you cash back rewards. Cardholders will earn unlimited 1% cash back on all their purchases — this may be a great way to teach your teen about how card rewards work. Although, there is a monthly service fee of $5.95/month (excluding New York, Texas and Vermont residents), cardholders will enjoy free ATM withdrawals at in-network ATMs and free point-of-sale (POS) transactions. It also offers things like purchase protection, roadside assistance and a helpful mobile app to monitor your purchases and balances. Prefer a card with similar perks (without cash back rewards) and a lower monthly fee? American Express Serve may be a better option for you.

Bluebird by American Express

secured credit card and prepaid cardIf you’re looking for a prepaid card that charges no set-up fee and no monthly service fee, Bluebird by American Express is for you. This card offers a number of free features, including direct deposit, the ability to pay bills online, write checks from your prepaid card account and manage your account with its mobile app, which makes it a top choice for tech-savvy teens. There’s no fee for POS transactions or ATM withdrawals as long as you use an in-network ATM and are a direct deposit customer. Additionally, it allows you to add up to four family account members for free, which is a great way for parents to help manage their children’s spending.

KAIKU Visa Prepaid Card

secured credit card and prepaid cardThe KAIKU Visa Prepaid Card features no set-up fee, no purchase fee and a low monthly service fee of $1.95/month. Its free mobile app is compatible with Blackberry, Android and iOS devices and it allows for free card-to-card transfers, which comes in handy if you and your children have cards because you can easily transfer money to them. Cardholders will also enjoy free ATM withdrawals at in-network ATMs.

Visit our review page to find out more about the secured credit cards and prepaid cards detailed in this post, and follow our personal finance blog to learn about anything and everything finance-related.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.