Best Unsecured Credit Cards | the ascent
How to Choose the Best Unsecured Credit Cards
If you’re not sure which card is best for you, no wonder. There are so many to choose from. The best credit cards offer things like cash rewards, double cash back on qualifying purchases, low introductory APR on balance transfers, and instant approval (to make your life easier).
Choosing the best card comes down to determining which card offers the most benefits that are right for you. For one person, that might mean earning enough air miles to fly to a hot island once a year. On the other hand, it may be getting enough money to pay for their child’s sports league.
Features like rewards points, double cash back, or bonus travel miles when you sign up are common features, but perks like access to concierge service when you shop or purchase a protection insurance can be what makes the difference when comparing two cards. Try these steps to narrow down your options:
- Step 1: Decide what is important to you. Is it travel miles, cash back at the places you shop most often, or rewards that let you splurge on items you wouldn’t normally buy?
- 2nd step: Find out which cards offer these top features.
- Step 3: Once you’ve identified a few cards that offer the features you want most, check out the associated benefits. That’s where things like roadside assistance, purchase protection, and cash in hand come in.
- Step 4: Find out what your interest rate will be. Ideally, you want to pay off your credit card in full each month, or at the very least get a credit card with a good APR that won’t keep you trapped in a circle of debt. If you are applying for a card for the first time, ask the card issuer to “prequalify” you. Let them know you want soft credit (it won’t hurt your credit). You would also like to know your APR and credit limit before proceeding with a full application. If the creditor agrees, you will likely be asked to fill out a short form that includes some personal information, including your social security number.
What is the difference between unsecured and secured credit cards?
Imagine that a friend asks to borrow money and promises to pay you back. They sign a promissory note and you give them the funds. It’s an unsecured loan because if they don’t pay you back, you’re out of money. Now imagine they ask to borrow some money but offer you a classic motorbike as collateral. If they don’t repay the loan, you can sell the bike and put the funds back in your bank account. It is a secured loan.
An unsecured credit card is like this unsecured loan. A credit card company takes you at your word that you will repay any money borrowed from the card. You will pay the annual fee (if there is one) and meet your obligation. If you have a bad credit rating, the credit card company is much less likely to trust you to refund the charges to the credit card.
This is where secured credit cards come in. With a secured card, you make a security deposit and that deposit becomes your credit limit. Let’s say you deposit $1,500. You can spend until you reach the $1,500 line of credit.
The main attraction of a secured credit card is to build credit by making regular, on-time monthly payments to the company that issued the card. Each time you make a payment, it is reported to a credit reporting agency and becomes part of your credit file. As you pay off the debt, your payment history improves and your credit score increases. Although you should look out for card issuers that charge exorbitant fees and high interest for using one of their secured credit cards, it’s a legitimate way to build credit. As far as the credit bureau goes, you pay off the usual credit card debt as agreed.
There is no minimum credit score required to open a secured credit card since it is designed specifically for people with low or no credit.
What credit rating do you need for an unsecured credit card?
Consumers with fair to excellent credit ratings may qualify for an unsecured credit card. The difference is the type of credit terms available for each category of borrower. For example:
FICO® score from 580 to 669
Because your credit score is within the fair credit range, you may have access to a limited number of cards, but:
- You will pay a higher interest rate than other cardholders
- Your credit limit may be low
- Your card may not offer attractive benefits
FICO® score from 670 to 739
You’ll have more options to choose from, but:
- You will pay a higher interest rate than borrowers with a higher score
- Your credit limit may still be too low for your liking (although you can increase your limit with regular, one-time payments)
- Your card may include some benefits
FICO® score from 740 to 799
Many credit card options are available to you, and:
- You should have little trouble landing a card with a relatively low interest rate
- Your cards may have high credit limits
- The cards available to you may offer rewards and benefits
FICO® score from 800 to 850
Your excellent credit qualifies you for the best credit cards, and:
- Your credit limits may be high due to your near-perfect credit score
- You will have access to the lowest interest rates
- Your cards are likely to offer the most valuable rewards and benefits
If your credit score falls below 580, you may have trouble qualifying for an unsecured card. All hope is not lost, however. Take the time you need to rebuild your credit score by checking your credit report for errors (and reporting any errors you find), paying off debts, and paying all bills on time. Plus, the best secured credit cards offer relatively low fees and help boost your credit score.
What is the average credit limit for unsecured credit cards?
Overall, Americans have an average of $22,751 in available credit on their credit cards. That’s not to say that the average limit for a single credit card is $22,751. It is difficult to establish an average because the amount of available credit granted to a cardholder depends on factors such as credit history, payment history, income and length of card ownership. Getting a credit card approved can mean having a credit limit of $1,000 until you show the card issuer how well you handle the card.
Can an unsecured credit card help build credit?
Every debt you take on, including an unsecured credit card, can help you build credit. Paying a credit card on time each month (or paying it off in full and avoiding interest payments) boosts your score. Whether you have a personal credit card or a business credit card, using less than 30% of the credit you have also improves your score.
The trick is to choose cards that reward you for being a responsible cardholder and to make good credit a priority when using the benefits offered by the cards you hold.
What you’ll find about each of the cards on our best cards list is that they offer actual rewards. As long as you pay off the balance each month (or keep your balances as low as possible), you can earn more in rewards than you pay in fees and interest.