A prepaid credit card is a secured card issued by a financial institution that has been secured with a prepayment. These cards can be compared to prepaid debit cards which use preloaded funds for transactions.

Breaking Down Prepaid Credit Card

Borrowers can utilize prepaid credit cards with a thin credit profile or also by borrowers with a low credit score. Prepaid credit cards differ from prepaid debit cards in that they require a credit check and credit approval from the issuer.

Prepaid Credit Card Approval

Prepaid credit cards are also known as secured credit cards. They require the same credit application process as a standard credit card. These cards can be useful for borrowers seeking to establish credit or improve their credit score. Secured borrowers are generally considered higher risk to lenders because they do not have an extensive credit history to base a credit decision on or their credit score may be low due to past delinquencies. Secured credit card issuers generally allow credit approvals for a wider range of borrowers because the card is secured with an initial collateral payment.

Secured credit card issuers may offer varying credit limits against secured collateral. Some issuers may only offer borrowers the collateral payment limit while others may offer twice the limit. Credit card issuers may also increase the credit limit for the borrower over the life of the relationship. In some cases, credit issuers may credit the collateral to the credit card after a prolonged period of time; however, most often borrowers are typically only rewarded with credit limit increases.