Unsecured credit

What is an unsecured credit card?

An unsecured credit card is just another name for a “normal” credit card. Unsecured means the debt on the card is not backed or secured by collateral. All the lender has is your promise to pay it back.

With traditional loans, you have to offer something as collateral to reduce the risk to the lender that you don’t repay the money. A car loan or home mortgage, for example, is secured by the car or house itself. If you don’t make your payments, a pension man will come and take your car or the bank will seize the house. Go to a pawnshop and put your old guitar in for cash – same concept. You can get your guitar back when you pay off the loan. Keep the money and the pawnshop sells the guitar. Loans with collateral are said to be secured.

Unsecured cards: no security deposit

Unsecured credit cards, however, have no collateral requirements. The card issuer just has to take your word for it that you will pay for the purchases you make. That’s why it’s hard to get unsecured cards if you have bad credit or no credit history. Your credit history is basically a record of how well you have kept your promises to repay borrowed money. If you don’t have a good track record (or any track record) in this area, lenders will be reluctant to lend you money.

Since the vast majority of credit cards are unsecured credit cards, you don’t hear the word much except when it’s necessary to distinguish not guaranteed cards of secured credit card.

As the name suggests, secure credit cards are backed by guarantees. You must deposit a cash security deposit to open an account, and this deposit is usually equal to your credit limit. Since you cannot charge more to the card than you have deposited, the risk to the lender is minimal. If you don’t pay your credit card bill, the lender may take your deposit. This is why secured credit cards are a popular option for people bad credit or no credit.

Who is eligible for an unsecured credit card?

Most popular credit cards are unsecured. You generally need good to excellent credit to qualify for unsecured credit cards with the richest rewards or lowest interest rates. Good credit is generally defined as a credit score of 690 or better.

A step down from good credit is fair credit, also called “average” credit. The credit score range for fair credit is around 630 to 689. There are a number of great unsecured cards for fair credit, including some that offer rewards, don’t charge an annual fee, or of them.

Are there any unsecured credit cards available to people wrong (629 and below) credit? Yes, but we generally do not recommend them. Unsecured cards for people with bad credit tend to charge exorbitant fees for small lines of credit. It’s not uncommon to see a $99 annual fee on unsecured cards, plus monthly maintenance fees, plus application and processing fees, all to get a $200 credit limit. In a year or two, these fees can easily add up to more than the minimum $200 or $300 deposit you owe on a secured card. And unlike a secure card deposit, you don’t get these fees back.

Finally, several issuers have started offering unsecured credit cards to people who have no credit history, good or bad. Instead of focusing on credit scores and credit reports, these issuers can assess applications by looking at income, occupation, bank account balances, and even things like where an applicant has been to. university and what he studied.