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Credit Card Applications » Questions » User Questions » Other » If you deposit $300 in an account, how are you getting credit if you use up the $300?

If you deposit $300 in an account, how are you getting credit if you use up the $300?

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Leo Zhu

That depends on whether you’re talking about a prepaid card, or a secured credit card. These are two different things, both of which require putting money down up front. I’m guessing you mean a secured credit card, but since we do offer both secured credit cards and prepaid cards through our site, I’ll briefly explain how both of them work.

A prepaid card isn’t a credit card at all, so in that case, there’s no credit issued. You simply load the card with the amount of money you’d like on it, and then use it until it’s gone – sort of like a store gift card.

A secured credit card is a credit card for people with poor credit, and it requires a deposit to act as collateral, in case you default on your card agreement. The security deposit you put down will generally be the same amount as your credit limit, although some prepaid cards may give you a credit limit at a slightly higher percentage than the deposit.

When your credit limit is the same amount as you deposited in the first place, you are right to wonder how you are getting credit at all. The advantage of having a secured credit card is that if your credit history is bad, it can be a stepping stone to a higher credit score and the ability to get a regular, unsecured credit card. With regular, timely payments, your credit history will improve – as long as the prepaid card reports to major credit bureaus. If you are shopping for a secured card, always make sure the one you apply for reports to credit bureaus, or else it won’t be worth having.

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