Here’s a recent reader email that we got:

Mr. CC,

I’m a college student looking to establish some credit history, but I’m having a hard time deciding between a secured credit card and a great prepaid card (with zero APR that reports to credit bureaus). here are the cards I’m looking at:

.Applied Bank secured credit card. (9.99 APR) https://onlineacceptance.appliedbank.com/displaySecureCardOffer.do?packType=3027&id=1877CO7490379

.Wired plastic pre=paid visa card. (0 APR) https://securesite.icommissions.com/wiredplastic/index.php?hid=h85999086h&a=40996

whats the verdict?

mr senai teklemichael

Answer – Hey Senai – Let’s get a couple of things squared up here. You can certainly apply for a secured credit card. And it will get you started in terms of building a credit history. But getting a prepaid credit card like the Wired Plastic Card you mentioned will not build credit history because by definition, prepaid credit cards do not extend you any credit!

Here’s what I would do if you are looking to get a college student credit card to start building a credit history.

Get a regular student credit card that is issued by any of the major credit card issuers. – The reason you should consider this a first option is because there is no other time where you can get an unsecured credit card with no annual fee attached. As long as you are earning some income or have a co-signer, you should be able to get one. Here are some tips when you choose a student credit card:

You can also get a secured credit card – Like I mentioned earlier, you can also get a secured credit card. But most secured credit cards charge an annual fee and some may not report your credit line as unsecured. There is obviously no harm in going this route though you would be better off getting a regular unsecured student credit card.

A Prepaid Credit Card is not the way to go – Let’s get this straight again. Prepaid credit cards do not build credit history because they do not extend any credit to the cardholder. The good thing about getting one is that you cannot overspend. But it comes with some inconvenience like potentially not able to use it at the gas station and having certain amount of money held for hotel reservations! There are a few rare prepaid credit card that actually help you to build your credit. These cards come with a service called “credit builder” where you have to pay a monthly fee and the fee is reported as an interest payments to the credit bureaus. An example of such a card is the Eufora Prepaid MasterCard® with Credit Builder. I would not recommend going this route. Why pay the extra when you do not have to. The only people who should even think about this are those who want to build or rebuild their credit and they know that having an unsecured credit card will lead to too much temptation to overspend.

Good luck with your choice and hope this clears up a few things.

This entry was posted on Thursday, June 4th, 2009 at 06:45 and is filed under Credit Cards FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.