If you deposit $300 in an account, how are you... - Other Questions


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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?

Answered on | Updated on August 31st, 2012
The content is accurate at the time of publication and is subject to change.

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.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
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