People with no or bad credit history have a limited choice of credit offers: they can apply for unsecured cards for bad/no credit, secured cards or prepaid credit cards. Two last categories require funds to be deposited before using the plastics. The main difference is in the usage of those funds. Secured credit card deposit will be used to cover your debt if you fail to pay your credit bills. Prepaid credit card deposit will be used as your credit line. But if you pay with your own money, is a prepaid credit card really credit?

Actually, there is no such thing as a prepaid credit card because you cannot borrow your own money. It is just an advertising gimmick. Prepaid credit card means the same as prepaid debit card.The card holders spend money which has been deposited by themselves or someone else, for example a parent or employer. However, the plastics can carry a credit card logo (Visa or MasterCard) and can be used worldwide.

It is easy to qualify for a prepaid credit card. Most lenders don't check employment, FICO score, addresses or even SSN. They let you borrow your own money - and they will lose nothing if you default.

Prepaid credit cards do not bear interest, but you are often charged loading fees, check deposit fees, transfer fees, annual fees and more. That is the price customers need to pay for flexibility and convenience of prepaid credit card usage. Because of the multiply fees, the Financial Consumer Agency of Canada describes them as "an expensive way to spend your own money".

The main advantage of prepaid credit cards is the ability to max out your funds and not to accumulate debt. The money is yours and once you have spent it, you can't make any more purchases until you deposit more funds. The similar principle is used for debit cards. It is very convenient if you have no financial experience and are unsure of your skills to manage card wisely.

Those who plan to use a prepaid credit card to make a purchase where a set amount of money is deducted from the account each month, should be aware that it may not be allowed. Some merchants don't accept prepaid credit cards for such purchases because there can be no funds when the time comes to pay the bill.

Prepaid credit card issuers do not report your payments to the credit bureaus. It doesn't suit people who are trying to establish or improve their credit. So don't believe advertising promises. The issuers can only report your fees, but those payments will do nothing to improve your credit rating.

If you want to get a "real" credit card, take into consideration secured credit cards. Basically, they adhere to the same principle - you have to deposit a specified amount of money on a saving account. Your credit limit will be equal to your deposit. You will not be able to spend more money than you have on your account.

The main advantage of secured cards is that the banks regularly report your payments to the major credit bureaus. That lets you build positive credit history and prove your creditworthiness.