Battle of the cards: Credit vs Debit vs Prepaid vs Secured [Which Is Right For You!] - The Confused Millennial (2024)

This post is in partnership withLexington Law,thank you for supporting brands who support TCM. As always, all thoughts, opinions, experience, and advice is my own.

If you're anything like me, the day you got to college orientation, they took you to the bank on campus. There you opened up your first bank account and were handed a debit card and credit card. And then for a lot of young adults, they end up abusing that credit card. Ultimately ruining their credit score, and ultimately become nervous about ever using one again. I've worked with clients who haven't even been able to get credit cards because their credit scores were so low… so what are you to do?

Looking back, it's kind of fascinating that no one ever explained the differences of the cards to me really. I kind of had to learn as I went. Which is why today, I want to spend some time talking about the differences between a debit card, credit card, secured card, and prepaid card and how to choose which one is right for you!

The best way to think about your debit card is that it's essentially cash. It's a direct link to your checking account. Meaning if you swipe it for $20, that money is automatically removed from your checking account and no further action on your end is needed. The caution with this, is if you look at your debit card as “magic money” you can quickly and easily overdraft your account *queue penalty fee.* The other “con” if you will with a debit card is that they don't report this to the credit bureaus so it doesn't really have an impact on your credit score.

So if you're trying to improve your credit score, only using a debit card won't really help you very much in the long run. Sure, your credit score may go up at first, but that'll be because the old damage you did is aging off, not because of what your currently doing (which is weighted the heaviest by the way, you can read more about how you credit scores are calculated here).

So should anyone use a debit card? Definitely, if you're in credit card debt and trying to get a grip on things, then don't add to the balance. Also, there are a few debit cards out there that will give you rewards and sometimes utility companies may give you a discount for using a debit card since they don't have to pay a credit card fee.

A credit card allows the cardholder to purchase items on credit. Meaning every time you swipe your card, you're taking out debt. You won't have to pay interest on that debt if you pay the balance off in full every month – and that's a good habit to be if you're looking to improve or maintain your credit score. Credit cards report to the credit bureaus, meaning they are a large factor in your credit score. Your limit and interest rate often varies depending on the type of card. The higher limits and lower interest rates are often more readily available to those with a better credit score.

Some credit cards offer perks, incentives, and rewards to card holders – these can range from everything like cash back, to travel rewards, to special goods, and so much more. Choosing a credit card with rewards you'll actually use is essential (click here for more tips on this from Lexington Law). Personally, this is the only type of card I use since I get rewards when I use it. I only ever charge what I can pay off in full every month, and I check my statements weekly. Credit cards can be great tools in your financial journey if you're checking them regularly and understand and abide by the terms you agree to when signing up.

Click here for more tips on finding the right credit card for you with a low credit score from Lexington Law.

A secured card is like a credit card with training wheels. Many will have an annual fee, high interest rates, and require you to put a certain amount of money in “collateral” on the card. For example, they'll require you put $200 on the card and give you a $200 credit limit. Now here's where a lot of people mess up: they think since they put the money on the card, that whenever they swipe, it's pulling from that money – like a debit card – but nope! That money is just to ensure they get paid. You still will need to pay your balance just like you would with a credit card.

Should you get a secured card? These types of cards are best suited for those who cannot get a credit card, but are looking to take steps to improve their credit score since this type of card reports to the bureaus. You'll be able to avoid the high interest rate by always paying your balance in full every month. Since these usually start with low credit limits, which rise as you prove your “credit worthiness” it's truly like a credit card with training wheels.

For more on the pros and cons of a secured card from Lexington Law click here.

Similar to a secured card, it has a fee associated with it and you'll put a certain amount of money on the card, which then becomes your limit. Unlike a secured card though, this acts like a debit card. So when you swipe the card it's going to pull from the money you pre-loaded on. Also unlike a secured card, prepaid cards do NOT report to the credit bureaus meaning they won't help improve your credit score. So who would ever use this type of card? Lots of people actually!

Some employers pay their employees on these types of cards, some parents give allowances on this type of card to get their kid used to having plastic without the potential damaging risks of the other options, and there are even speciality prepaid cards that allow caregivers to give loved ones money with restrictions (think spending limits, curfews, blocked merchants, etc.). Lexington Law even recommends prepaid cards as a gift for essentials like gas and food for your friends or family on their own credit repair journey (read more about their gift suggestions here).

There you have it! That's the basics to get you started on understanding the difference between a debit vs credit vs prepaid vs secured card! May you choose the one that best meets your financial situation. If you are struggle to repair your credit, remember that there are professionals out there like Lexington Law who are waiting to help you. No one should have to live in debt or with unnecessary financial stress.

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