Unsecured credit

Secured credit cards vs unsecured credit cards

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If you’re in the market for a new card but don’t have a great deal of credit history, you may have come across secured credit cards during your research and wondered how they differ. regular or unsecured credit cards. While secured credit cards and unsecured credit cards have a lot in common, there are a handful of key differences, such as a security deposit.

Below, CNBC Select details the main differences and similarities between secured credit cards and unsecured credit cards.

What is a secured credit card?

A secured credit card is almost the same as an unsecured credit card, but you must make a minimum deposit (called a security deposit) to receive a credit limit. The deposit is usually $ 200, but can be higher or lower depending on which secure card you open.

The Capital One® Platinum credit card offers applicants the option to qualify for a card with a deposit of less than $ 200. You can deposit a low deposit of $ 49 or $ 99 and still receive a credit limit of $ 200.

Secured cards are often marketed to people looking to build or replenish their credit. As a result, the security deposit serves as a guarantee in the event of default, but it is fully refundable if you switch to an unsecured card or if you pay off your balance in full and close your account.

The Discover it® Secure Credit Card gives cardholders a clear path to upgrade to an unsecured card. Starting eight months from opening the account, Discover will automatically examine your credit card account to see if it can transfer you to an unsecured line of credit and return your deposit. This takes the guesswork out of when you will qualify for an unsecured credit card.

How secure credit cards work

After making the minimum security deposit, you can start using your secure card just like any other credit card. You can spend up to your credit limit, which is often equal to your security deposit. So a $ 200 security deposit equals a $ 200 credit limit. If you want more purchasing power, you will have to deposit more money. The maximum amount you can deposit varies depending on the secure card, but can go up to $ 2,500.

Some secure cards, such as the Capital One® Platinum credit card, may offer a higher credit limit (no additional deposit required) after you’ve made the first five monthly payments on time, which is also a great incentive. to adopt responsible credit behavior.

You will have to pay interest charges if you keep a balance from month to month, so make sure you pay your bill in full and on time, which also improves your credit score.

Actions you take with a secured card are reported to the three major credit bureaus (Experian, Equifax, and TransUnion), so it’s crucial to avoid maxing out your card and paying off your balance each month.

Secured credit cards vs unsecured credit cards

Trying to choose between a secure or an unsecured card? Your credit score could play an important role in your decision making.

If your credit is below average, a secured credit card may be the best option, as it’s usually easier to qualify with poor credit (scores below 580) or no credit.

If your credit is already good or excellent (scores of 670 and above), an unsecured card may give you better benefits that can earn you rewards in common expense categories, such as dining, gas, and shopping. grocery store, Global Entry or TSA PreCheck credit and added entertainment benefits. Check out our list of the best credit cards.

If you decide that a secured card is the best option, consider some of the best secured credit cards listed below. Once you’ve improved your credit, you can switch to an unsecured card.

If you can’t afford the $ 200 security deposit, you should look for other ways to increase your credit score, including becoming an authorized user on someone else’s account. You might also want to look for a card aimed at consumers with low credit that don’t require a deposit. CNBC Select has a few suggestions in our roundup of the best credit cards.

Recommended secured credit cards

There are tons of secure cards available, but some may charge an annual fee or have minimum security deposits over $ 200. Here are some of the best secured credit cards that have no annual fees and deposits of $ 200 or less.

Discover it® secure credit card

On the secure Discover site

  • Awards

    Earn 2% Cash Back at gas stations and restaurants on up to $ 1,000 in combined purchases each quarter. Plus, get unlimited 1% cash back on all other purchases – automatically.

  • Welcome bonus

    Discover will match all of the cash back rewards you’ve earned at the end of your first year

  • Annual subscription

  • Intro APR

  • Regular APR

  • Balance transfer fees

    3% introductory balance transfer fee, up to 5% fee on future balance transfers (see conditions) *

  • Foreign transaction fees

  • Credit needed

Advantages

  • Cash back program
  • Generous welcome bonus
  • Discover automatically examines your credit card account from eight months old to see if it can transfer you to an unsecured line of credit and refund your deposit.

The inconvenients

  • Cash back program limits income: 2% cash back at gas stations and restaurants up to $ 1,000 in combined purchases each quarter, then 1%
  • Low Line of Credit Prevents Cardholders from Charging Bigger Items or Many Expenses

Capital One Secure Mastercard®

Capital One Secured Mastercard® information was independently collected by CNBC and was not reviewed or provided by the card issuer prior to publication.

  • Awards

    This card does not offer cash back, points or miles

  • Welcome bonus

  • Annual subscription

  • Intro APR

    N / A for purchases and balance transfers

  • Regular APR

    26.99% variable on purchases and balance transfers

  • Balance transfer fees

  • Foreign transaction fees

  • Credit needed

Advantages

  • No annual fee
  • Refundable deposit of $ 49, $ 99 or $ 200
  • Access a higher line of credit after making your first five monthly payments on time
  • No fees charged on purchases made outside of the United States
  • Flexibility to change your payment due date

The inconvenients

  • High variable APR of 26.99%
  • No rewards program
  • After you apply and submit your deposit, it takes 2-3 weeks to get your card
  • Capital One periodically examines your account to see if you can switch to an unsecured card, but unlike the Discover it® secure card, there is no clear timeline for when this will happen.

Citi® Secured Mastercard®

  • Awards

    This card does not offer cash back, points or miles

  • Welcome bonus

  • Annual subscription

  • Intro APR

    N / A for purchases and balance transfers

  • Regular APR

    22.49% variable on purchases and balance transfers

  • Balance transfer fees

    $ 5 or 3% of the amount of each transfer, whichever is greater

  • Foreign transaction fees

  • Credit needed

Advantages

  • No annual fee
  • Refundable deposit of $ 200
  • Flexibility to change your payment due date

The inconvenients

  • No rewards program
  • 3% foreign transaction fees

Capital One® Platinum credit card information was independently collected by CNBC and was not reviewed or provided by the card issuer prior to posting.

For pricing and fees for the Discover it® Secure Credit Card, click here.

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.


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