How Do Unsecured Credit Cards Differ From Secured Credit Cards?

August 23, 2024 by Meshva Patel

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Table of Contents

Credit cards come in two main types: unsecured and secured. Unsecured credit cards don’t need a deposit upfront. They offer great perks, rewards, and lower fees and rates. On the other hand, secured credit cards require a cash deposit, equal to the credit limit, as collateral. These cards are for people with poor credit or little credit history. Unsecured cards are for those with good credit.

Key Takeaways

Unsecured credit cards do not require a security deposit, while secured cards do.
Unsecured cards generally offer better perks, rewards, and lower fees and interest rates.
Secured cards are designed for people with poor or limited credit history, while unsecured cards are for those with good credit.
The key differences between secured and unsecured credit cards include deposit requirements, interest rates, fees, credit limits, and rewards.
Building credit history is possible with both secured and unsecured credit cards.

What is a Secured Credit Card?

A secured credit card needs a refundable security deposit. This deposit is as much as the card’s credit limit. It acts as a safety net for the card issuer if the cardholder doesn’t pay back. These cards are for people with bad or no credit who want to improve their score.

Defining Secured Credit Cards

Secured credit cards work like regular unsecured credit cards, but with a key difference: the security deposit. This deposit is refundable and helps the card issuer. It also lets the cardholder’s payment history be reported to credit bureaus. This is great for those with limited or bad credit to start building a good credit history.

Benefits of Secured Credit Cards

Opportunity to build or rebuild credit: Secured credit cards help people with poor or no credit start fresh.
Refundable security deposit: The deposit for a secured card is given back after you use the card responsibly and pay on time.
Potential for rewards: Some secured credit cards offer rewards like cash back or points, just like unsecured credit cards.

Secured credit cards might have higher fees and interest rates than unsecured cards. But, they are a great way for people to get better credit and open doors to more financial opportunities later on.

What is an Unsecured Credit Card?

Unsecured credit cards don’t need a security deposit. They are often called traditional credit cards. These cards usually have better perks, lower fees, and lower interest rates than secured cards. They are mainly for people with good credit histories.

Secured cards are easier to get for those with poor or no credit. The main difference is the deposit requirement. Secured cards need a refundable deposit, usually $200 to $500, which is your credit limit. Unsecured cards don’t need a deposit. Your credit limit is based on your creditworthiness, income, and other factors.

Feature	Unsecured Credit Card	Secured Credit Card
Deposit Requirement	No deposit required	Security deposit required (typically $200-$500)
Credit Limit	Based on creditworthiness and income	Equal to the security deposit
Fees and Interest Rates	Generally lower	May be higher
Perks and Rewards	Usually more extensive	Limited or no perks/rewards

For people with good credit, unsecured credit cards are the best unsecured cards. They offer more favorable terms and benefits. These cards are unsecured, so they don’t require a security deposit. This makes them easier for those who qualify.

In summary, unsecured credit cards work by giving credit access without a security deposit. They have better perks, lower fees, and lower interest rates than secured cards. This makes them a top choice for consumers with good credit.

Secured vs. Unsecured Credit Cards: Key Differences

There are two main types of credit cards: secured and unsecured. The main difference is the deposit needed for secured cards. Knowing these differences can help you pick the right card to improve or start your credit history.

Deposit Requirements

Secured credit cards need a refundable deposit, usually between $200 to $2,000. This deposit becomes your card’s credit limit. It helps people with bad or no credit get a card. Unsecured credit cards don’t need a deposit but often require a certain minimum recommended credit score.

Interest Rates and Fees

Secured credit cards usually have higher APR and annual fees than unsecured cards. This is because they’re for people with lower credit scores, seen as riskier by card companies. Unsecured cards might have lower interest rates and annual fees, especially for those with good credit.

Credit Limits and Rewards

Secured credit cards have lower credit limits, often matching the deposit amount. Unsecured cards can offer higher limits and rewards like cash back or points on buys.

Feature	Secured Credit Card	Unsecured Credit Card
Deposit Required	Yes, typically $200 to $2,000	No
Credit Limit	Equal to the security deposit	Higher, not tied to a deposit
Interest Rates and Fees	Generally higher APR and annual fees	Potentially lower APR and annual fees
Rewards	Limited or no rewards program	Potentially offers rewards programs

Knowing the differences between secured and unsecured credit cards can help you pick the best one for your financial needs and credit goals.

Building Credit with Secured and Unsecured Credit Cards

Secured and unsecured credit cards are great for building your credit history and boosting your credit score. It’s important to use them wisely. Make sure to pay on time and keep your credit use low.

Secured credit cards require a refundable deposit that becomes your credit limit. This deposit shows you can handle credit well. The issuer will report your payment history to the credit bureaus. If you use the card responsibly, you might get your deposit back when you upgrade to an unsecured card.

Unsecured credit cards don’t need a deposit but have their own rules for who can get them. They also report your payment history to the credit bureaus. By using the card carefully and paying off the balance each month, you can improve your credit.

Make on-time payments to show you’re responsible with credit
Keep your credit use under 30% of your limit
Check your credit report for errors and correct them

Choosing a secured or unsecured card depends on your financial situation. But the main thing is to use it well and regularly. Doing so can help you build your credit history and raise your credit score over time.

Feature	Secured Credit Card	Unsecured Credit Card
Security Deposit	Required	Not required
Credit Limit	Based on deposit amount	Determined by issuer
Eligibility	Easier to qualify	Requires good or excellent credit
Rewards	Limited or none	May offer rewards program

Using a secured or unsecured credit card wisely can help you build your credit history and improve your credit score over time. The choice between them depends on your financial situation and credit profile.

Unsecured Credit Card: Eligibility and Application Process

Getting an unsecured credit card is harder than getting a secured card. You need a good credit score, usually 670 or higher. You also need enough income to show you can pay back the money each month.

Credit Score and Income Requirements

Lenders look closely at your credit score and income to see if you can get an unsecured credit card. They want a credit score of 670 or more. This shows you’ve been good with credit before.

You also need a steady income. This could be from a job or other reliable sources. It proves you can handle the monthly payments of an unsecured card.

Applying for an Unsecured Credit Card

Applying for an unsecured credit card is similar to applying for a secured card, but you don’t need a deposit. You’ll need to give out personal info like your name, address, and birthdate. You’ll also share your income, job details, and any debts you have.

Lenders look at this info to see if you’re a good candidate for an unsecured credit card.

Requirement	Unsecured Credit Card	Secured Credit Card
Credit Score	Typically 670 or higher	No minimum, can be used to build credit
Income	Steady source of income required	No specific income requirement
Security Deposit	No deposit required	Security deposit required, typically $200-$500

Knowing what you need to get an unsecured credit card helps you make smart choices. It’s a key step in building and keeping a good credit score.

Graduating from a Secured to an Unsecured Credit Card

Getting credit can be tough, but a secured credit card is a great way to start building your credit. If you pay on time with your secured card, you might get a chance to move to an unsecured credit card.

Switching to an unsecured card has many perks. You’ll get better benefits, lower fees, and higher credit limits. You can either ask your card company to move your secured credit to an unsecured card or apply for a new one and close your secured card account.

Check your credit report and score to ensure you’ve built sufficient credit history.
Contact your card issuer and request an upgrade to an unsecured card.
Be prepared to provide information about your income, employment, and overall financial situation.
If your issuer approves the upgrade, your secured deposit will be returned, and you’ll enjoy the benefits of an unsecured credit card.

Moving from a secured to an unsecured card is a big step in improving your credit. It opens doors to better credit cards with more attractive terms and rewards.

“Upgrading to an unsecured card can be a game-changer for your credit journey.”

It’s important to keep using your credit wisely after you switch to an unsecured card. Always pay on time and keep your credit use low to keep your credit score up.

Also Read : What Are The Requirements For Getting A Secured Vs Unsecured Credit Card?

Conclusion

Credit cards, both secured and unsecured, are great for people wanting to improve their credit. Secured credit cards need a deposit but help those with bad or no credit. Unsecured cards have better terms and rewards but are harder to get.

Choosing between a secured or unsecured card depends on your financial situation and goals. It’s important to know the differences, like deposit needs, interest rates, fees, and limits. This way, you can pick the card that fits your needs and helps you reach your financial goals.

Using your credit card wisely, paying on time, and building a good credit history is key. This approach helps you manage your credit well and opens doors to more financial opportunities in the future.

FAQs

Q: What is the main difference between unsecured cards and secured cards?

A: The main difference is that unsecured cards do not require a security deposit, while secured cards require a deposit that acts as your credit line. Unsecured cards are typically easier to qualify for if you have good credit.

Q: Can people with bad credit get an unsecured credit card?

A: Yes, there are cards for bad credit available, but they may come with lower credit limits and higher interest rates. It’s advisable to look for the best unsecured credit card that fits your credit situation.

Q: How do unsecured credit cards work for building your credit?

A: Unsecured credit cards work by allowing you to make purchases on credit without a security deposit. By making timely payments, you can build your credit history and improve your credit score.

Q: What should I look for in the best unsecured credit card?

A: When searching for the best unsecured credit card, consider factors like annual fees, interest rates, rewards programs, and whether the card reports to the major credit bureaus.

Q: What type of security is required for secured cards?

A: Secured cards require a security deposit that serves as collateral, which usually becomes your credit line. This deposit is refundable when you close the account in good standing.

Q: Are there cash rewards credit cards available for people with low credit?

A: Yes, some credit card issuers offer cash rewards credit cards designed for individuals with low credit. These cards may have fewer rewards options compared to the best unsecured credit cards.

Q: How can I improve my credit using a credit card for bad credit?

A: To improve your credit using a credit card for bad credit, make sure to make your payments on time, keep your credit utilization low, and avoid applying for too many cards at once.

Q: What is the benefit of a platinum visa® for rebuilding credit?

A: A platinum visa® for rebuilding credit often offers better terms for individuals looking to improve their credit score. It typically includes features such as lower fees and the ability to earn rewards.

Q: How do I qualify for an unsecured credit card?

A: To qualify for an unsecured credit card, you generally need to have a fair to good credit score and a stable income. Some issuers may also consider your credit history and existing debt levels.

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