Secured And Prepaid Credit Cards: The New Phenomenon

Credit card interests have been skyrocketing for some time now and the recent credit crunch has made borrowing from banks harder and harder. nnCredit card costs have increased since the beginning of the year; there have been 22 purchase hikes and 15 cash rates increases for services such as balance transfers, cash withdrawals and foreign usage. According to moneyexperts.com credit card companies have slashed by average £16,000 off credit limits of customers.nnCredit card providers have tightened their criteria and people with less than perfect credit history struggle to get competitive rates on their credit cards. nnThis has led to more and more consumers stopping their credit card repayments in favour of payments for essentials like food, fuel and mortgages.nnAll these developments have brought about a rise in the popularity of secured and prepaid credit cards.nnA secured credit card is a credit card secured against a deposit saving account; the account holder has to put up 100% or 200% of the credit limit making it less of a risk for the card issuer. Normally the deposit cannot be withdrawn as long as the credit card account is active however after a year or two of making payments the credit card account can then be upgraded to a non-secure account by the issuer meaning the deposit in the saving account can then be withdrawn. Also secured credit cards have a higher interest rate because the bank considers the customer a higher risk and so the charges tend to be more than someone with impeccable credit history. nnOne way of preventing these higher interest charges is to pay balances in full; this saves money as well as teaches good repayment habits. It also establishes a positive payment history which helps rebuild damaged credit history.nnSecured credit cards have however been accused of being difficult to get mainly because most customers may find it difficult to find the lump sum needed as deposit. nnPrepaid credit cards on the other hand are not really credit cards even though they look like one and can be used like one. They are debit cards in the sense that the holder puts money in an account and uses the card to withdraw or make purchases. However unlike debit cards there is normally a set up and a small monthly fee. These sorts of cards can also be issued to minors something which is inapplicable to normal or secured credit cards. nnPrepaid credit cards are also easily accessible; an application for one can be picked up in most shops and supermarkets.nnSo if you are an adult with bad credit history so can’t get a normal credit card or just want to keep an eye on your expenses or perhaps a parent trying to teach you teenager how to manage their money and stay within budget. A prepaid credit card may be just what you need it is easy to obtain, cost less as you only pay a small monthly and set up fee and most importantly anyone can get one regardless of their credit history. However if you can afford to pay a lump sum deposit you might want to consider a secured credit card especially if you have a bad credit history. n