A secured credit card can help people with bad credit or a shorter credit history get rid of this paradox. Here's what you need to know to understand the security cards and how they differ from regular security cards.

A secured credit card is guaranteed by the cash you deposited when you opened the account. Deposits are usually equal to your credit limit, so if you save $200, you have a $200 quota. Deposits reduce the risk of credit card issuers: if you don't pay your bills, the issuer can withdraw money from your deposit. This is why people with bad credit or no credit can use these cards.

What if you always pay on time, what about the $200 deposit? You will end up with it. By using this card responsibly, you can increase your credit and qualify for an unsecured card – a card that does not require a deposit.

Some of the best security cards allow you to upgrade your account directly to an insecure card. Others don't have an upgrade process, so you must apply elsewhere and then close the security card. When you upgrade or close an unsuccessful guarantee card, the card issuer will refund your deposit. The minimum and maximum amount you can deposit varies from card to card, but you should have a guaranteed deposit of at least $200.

Secured and unsecured cards

Whether you need a security card depends on how good your credit card is. For unsecured cards, no deposits are required, which poses a greater risk to the issuer. Credit card companies usually require at least an average credit, and the best credit card requires good or good credit.

Some unsecured credit card advertises that you are easily qualified, even if you have bad credit. But these credit cards usually charge a very high fee. Nerdwallet recommends applying for a secured card instead of a high-charge unsecured card.

How a secure credit card works

Once the initial deposit is paid, the secured card works like an unsecured card:

• You can use them wherever you accept credit cards, including online
• You can create or rebuild your credit by responsibly using your credit card and paying your balance on time.
• If you hold the balance, interest will be generated.

Most major credit card issuers offer secured and unsecured credit cards. Annual fees are common, but you should not pay more than $50. You can find a security card with an annual fee of $0 in our favorites. If you are not eligible for an unsecured card, a guaranteed card is a good tool because you want to improve your credit. However, being responsible for a secured credit card is just as important as any other loan or bill shown on the credit report.

Secured credit card and prepaid debit card

A prepaid debit card appears to be similar to a secured credit card. You must pay in advance to use a credit card, and they usually have a Visa, MasterCard or American Express logo. But for prepaid debit cards, you use your own money to buy, not the money borrowed from the issuer. You put the money on the card, and the issuer uses the money to pay for your purchase.

Since these credit cards do not provide any credit, account activity will not be reported to the credit bureau. Therefore, you cannot use a prepaid card to establish a credit history. Prepaid debit cards can also have a fee that is not covered by a secured credit card. If your goal is to establish credit, then a secured credit card is your best choice.