Unsecured credit

Secured vs. Unsecured Credit Cards: What Should You Get?

Credit cards can help you build credit, earn rewards, and track your spending. But there are actually two types of cards. If you apply, you should know the difference between a secured and unsecured credit card.

This guide to secure and unsecured credit cards can help you make a more informed choice about the type of card that’s right for you. You will also learn the advantages and disadvantages of secured credit cards and unsecured cards.

Secured vs. Unsecured Credit Card: What’s the Difference?

The main difference between a secured credit card and an unsecured credit card is that a secured card requires collateral. (We’ll explain what this means in more detail below.) This is why it is more difficult to qualify for an unsecured card.

What is a secured credit card?

A secure credit card requires that you have collateral. Collateral is an asset or item of value that you can use to secure a personal loan or credit card account. If you don’t pay your debt, the lender can take your collateral to get their money back.

In the case of a secured card, this guarantee is a security deposit. It is usually equal to the credit line on the card. Suppose you have a secured card with a credit limit of $ 500. You would be required to deposit $ 500 into a special savings account controlled by the lender. You can charge up to $ 500 on the card at a time. As you paid off your balance, you could charge over and over again, just like with a regular card.

If you don’t pay your bills, the lender could take the $ 500. But the goal is for the $ 500 to stay in the special account while you make monthly payments. The lender reports the payments to the credit reporting agencies, helping you build your credit.

What is an unsecured credit card?

An unsecured credit card is not secured by assets. A credit card company gives you a line of credit, usually after a credit check. If you have good or excellent credit, you could get a large line of credit, like $ 5,000 or $ 10,000 or more.

The big difference between a secured and an unsecured credit card is that you don’t have to make an initial deposit when you get an unsecured card. There is no asset the lender could take if you don’t pay your bill.

With an unsecured card, the lender relies on your word that you will pay your bill, which is a greater risk than a secured card. If you don’t pay, they’ll have to pursue collections, like going to court and getting a judgment against you.

As with an unsecured credit card, you can charge up to a secured card’s line of credit. As you pay your bill, you can charge more. You can also perform a balance transfer, which allows you to transfer balances from other cards to your new, unsecured card.

Is a secured credit card or an unsecured credit card better for your credit?

There is no real difference between a secured credit card and an unsecured credit card in terms of credit. As long as either the secured card or the unsecured card reports your credit account and payment history to each credit bureau, the card will help you grow your credit.

This is important because if you are applying for a personal loan, car loan, or mortgage loan, lenders look at your credit report to see if you have a good credit rating and a long history of paying bills on time. Without good credit, you may only qualify for secured debt because lenders will have no reason to believe that you will pay it off. If you are applying to rent an apartment, landlords also take your credit score into account when deciding whether or not to rent to you and when setting your security deposit.

Unsecured cards might be better for your credit because they often have higher credit limits. This can impact your credit utilization rate, which is the ratio of credit used to the credit you have available. A lower ratio is preferred by lenders, but if you have a secured card with a low limit, it may be more difficult to keep the ratio low.

This only becomes a problem if you charge a lot on your cards, however. If you don’t charge a lot on your secured card and keep your usage rate well below 30%, you can maintain a credit usage rate on your secured card that helps you achieve a good credit score.

Advantages and Disadvantages of Secured Credit Cards Versus Unsecured Credit Cards

When comparing a secured credit card to an unsecured credit card, each option has pros and cons that are worth considering.

Benefits of secured credit cards

Here are the big advantages of a secure card:

  • Easier to qualify for: Since lenders take no risk with a secured card, almost anyone can qualify, regardless of their credit score or credit history. This makes it one of the best cards for bad credit borrowers. They are also among the best credit cards for beginners.
  • Can help you build credit: As long as the credit card provider is reporting payments, you can create a payment history. If you pay your bill regularly, you have a good chance of getting a good credit score.

Disadvantages of secured credit cards

Secured credit cards also have some drawbacks:

  • Often charge higher interest rates and higher annual fees: You can alleviate this inconvenience by looking for a no-fee card and making sure you don’t have month-to-month credit card debt.
  • You need to make a cash deposit: This ties your money with the credit card company.

Benefits of unsecured credit cards

Here are some of the main benefits of unsecured debt:

  • You may be able to get a lower interest rate: A lower rate makes it cheaper if you have to carry a balance. You can use a credit card interest calculator to compare how much debt you would cost with different card interest rates.
  • You might have a greater choice of card options: There are generally more unsecured credit cards than secured credit cards to choose from.
  • You may have access to better rewards and benefits: The benefits and rewards programs for unsecured cards are often much more generous for cardholders.

Disadvantages of unsecured credit cards

Unsecured cards also have some drawbacks:

  • More difficult to qualify for: Unless you have a good credit rating, you may not be able to get approval for an unsecured card.
  • Larger credit lines increase the risk of getting into debt: If you are allowed to borrow a lot of money, and you don’t have collateral to guarantee your ability to pay, you may have the upper hand.

How to choose between a secured or unsecured credit card

Here are some ways to help you choose between a secured or unsecured credit card:

  • Consider your credit history: If you don’t have a credit score or a low credit score, a secured card may be your best and only option.
  • Compare the functionality of the card: Compare interest rate, rewards programs, annual fees, and cardholder benefits on multiple unsecured and unsecured credit cards before choosing.

Most people who choose between secure and unsecured cards will find that an unsecured card is a better option if they can benefit from it.


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