Secured and unsecured credit cards: what’s the difference? (2022)
In most cases, payments in developed countries such as the United States are made primarily by credit card. However, this puts many people in a difficult situation because they cannot get a credit card if their credit score is not good enough. The system was developed to prevent companies from allowing people to pay with money they cannot repay, and therefore makes it very difficult, if not impossible, to find a card issuer who will approve your card application. credit if your credit score is 579 or less.
Luckily, there is a way around this, as you can simply apply for a secured credit card, which is available to just about everyone. Not only that, but they can also help you improve your credit score and possibly switch to an unsecured credit card.
If you’re unfamiliar with the concept of secured and unsecured credit cards, stick around because we’re about to tell you everything you need to know about them.
What are secured credit cards?
Simply put, a secured credit card is a type of credit card that you can get even with a low credit score. However, there is a catch – to get it you will need to make a cash deposit as security. The amount you deposit is usually close to the line of credit amount you will get. So if you post $1,000 as collateral, you’ll probably get a line of credit of about $1,000.
You might think this is a lot like using a simple debit card, where your credit score doesn’t even matter, and you’d be right. The principle is indeed similar. With debit cards, you top them up with cash which you can then spend. With secured credit cards, you pay a deposit and can then spend the amount you paid. So why even go through all the hassle of secured credit cards?
The reason is simple. When you use secured credit cards, your card issuer monitors your activity and reports it to three credit bureaus. If you use the card responsibly, it will be reported to the bureaus and your credit score will improve enough for you to get a proper, unsecured credit card.
Secured or unsecured credit card: what’s the difference?
Secured and unsecured credit cards can be used anywhere to pay for goods and services. However, generally speaking, unsecured cards offer a better deal to consumers. You see, with unsecured cards, you don’t have to deposit any money first. Instead, you get a line of credit and you can spend until you reach it, then pay that money later. With secured credit cards, it’s the other way around.
Moreover, unsecured cards also have better benefits and even some rewards. For example, you get lower fees and/or lower interest rates. Your average PR for unsecured credit cards is over 16%, but for secured cards it is significantly higher. Unsecured cards may have annual fees, but not necessarily. Meanwhile, secured credit cards rarely come with rewards while unsecured cards usually offer lots of rewards to the user.
How do I apply for a secure credit card?
If you’ve decided to apply for a secured credit card, you’ve taken the first big step towards improving your credit score. The application process is the same as the process for obtaining an unsecured card. You start by comparing the secure cards offered by different providers and find the one that offers the most advantageous offer, then you continue with your request.
You will need to provide certain information, such as your name, address, date of birth, social security number, and employment information, including your income. Usually you will also need to make this initial deposit when you apply, and you can usually do this online if you have a debit card or bank account. In a rare situation where your secured credit card application is rejected, the money will be returned to you, which usually takes a few business days.
How do I switch to an unsecured card?
Assuming you’ve had your card secured for a while and you’ve done everything right, your credit score might be good enough for you to request an upgrade and get an unsecured card instead. Estimates say it usually takes 12-18 months of careful use of the secure card, but it really depends on your score and how good it is. The minimum credit score to qualify for an unsecured card is 670 or higher.
But, once your credit score is in order, you can either ask your card issuer to transfer your secured line of credit to an unsecured card, or try applying for a brand new credit card and close the secured card once you get the unsecured one. Also note that when you close your secured credit card, you get your initial deposit back.
Usually, it’s both faster and easier to just apply for a new card, rather than upgrading the secure card. Not to mention that it’s better because you will be able to choose the right card that offers the most rewards.
Secured vs Unsecured Credit Card: Establishing a Credit Score
As mentioned earlier, a secured credit card allows you to increase your credit score, which eventually allows you to qualify for an unsecured card. However, it is important to note that unsecured credit cards also help you improve your score even more.
The process is pretty much the same for both cards, as they both report your movements to the three credit bureaus – TransUnion, Experian and Equifax. They will collect data about your balances, purchases and payments to create a credit usage history.
What are the best secure bank cards in 2022?
After deciding to get a secured credit card, you will first need to research the best deals and compare them to see what they offer. Essentially, you’re looking for the lowest fees and the best benefits. So, for example, you can check out the following offers.
1) Discover It Secure Credit Card
The first is Discover It Secured Credit Card, which is one of the few credit cards that allows you to earn rewards without having an annual fee. The card gets you 2% cash back at restaurants and gas stations and unlimited 1% cash back on everything else. Your line of credit can be any amount between $200 and $2,500, depending on how much you pay for your first deposit. And, at the end of your first year of use, Discover matches any cashback you’ve earned. Finally, you also become eligible to receive free access to the FICO credit score, which is very useful for monitoring changes.
2) Capital One Quicksilver Secured Credit Card
Moving on, we have the Capital One Quicksilver Secured Cash Rewards Credit Card. This card is best suited for those who want to earn a flat rate of rewards for every purchase. It offers 1.5% cash back on purchases, which is a fair rate for both secured and unsecured credit cards. Plus, if you travel frequently, you’ll love its special perk: 5% unlimited cash back on hotels and rental cars you book with Capital One Travel. This card also has no annual fee and its minimum deposit is only $200. And, like the others, it will improve your credit score.
3) Capital One Platinum Secured Credit Card
Finally, we have the Capital One Platinum secured credit card, which allows you to obtain a line of credit with a refundable deposit of $49, $99 or $200. This makes it a great option for users who don’t have a lot of money and can’t make large deposits. However, the company will keep an eye on your account and in just 6 months they will check if you can automatically be considered for a higher line of credit. Unfortunately, this card has no rewards, but it also has no annual fee, and you can still boost your credit score with it.
Modern society is moving away from cash payments and towards cards, including debit and credit cards. Obviously, credit cards have many advantages, but obtaining them requires a good credit score, which can be difficult to obtain. If you find yourself in such a situation, consider getting a secured credit card and you can check out the best deals on this page. They can improve your credit score, possibly get you an unsecured card, and some even have pretty decent perks, so check them out and take your pick.