What is the difference between secured and unsecured credit cards
When your credit score is in the lowest range — 579 or lower — finding a credit card issuer that will approve you for one of their products can seem impossible. Fortunately, there is a type of credit card that almost anyone can be approved for. With a secure credit card, consumers with poor credit have the opportunity to build good habits and prove their creditworthiness over time.
What is a secured credit card?
Secured credit cards are a type of credit card that requires a cash deposit as collateral. This deposit is normally close to the amount of the line of credit you receive. If you apply for a secured credit card and put down a $500 security deposit, for example, you’ll likely qualify for a $500 line of credit.
You might wonder why anyone would want a credit card that requires a cash deposit up front, but it’s not too hard to see why consumers with poor credit might be willing to apply. Getting approved for a traditional unsecured credit card may be impossible when your credit score is low, but you may not be able to improve your credit over time if you can’t find a lender to extend credit to you.
With a secured credit card, on the other hand, consumers who need to work on their scores can secure their line of credit with a cash deposit. And since their payments are reported to all three credit bureaus, they have the opportunity to build credit and improve their credit rating over time.
Secured or unsecured credit cards
Generally speaking, unsecured credit cards are a better deal for consumers. When a card is unsecured, it means you don’t have to post a security deposit. Most credit cards are unsecured. Unsecured credit cards tend to offer better benefits and rewards, lower fees, and lower interest rates.
The following table explains some of the main differences between secured and unsecured credit cards:
|Minimum credit score to qualify||Usually 670+||Available for scores below 579|
|Average APR||More than 16 percent||APRs tend to be higher for secured credit cards|
|Annual fees charged?||sometimes||Usually not; the security deposit is usually a one-time refundable amount|
|Helps you build your credit by reporting to credit bureaus||Yes||Yes|
|Rewards available?||Yes, with many rewards credit cards||sometimes|
How to apply for a secure card
Applying for a secured credit card works the same as applying for an unsecured credit card; you’ll start by comparing secured credit cards to find the one that offers the benefits you really want, then move on to your application.
The information you will need to provide in your secure credit card application will include your name, date of birth, address, social security number, employment information, and income. Most secured credit cards will ask you to pay your security deposit when you apply, which you can usually fund online with a debit card or bank account. If your secured credit card application is not approved, the cash deposit you deposited will be returned to you, usually within a few business days.
How to upgrade an unsecured card
If you’ve had a secured card for a while and improved your credit score as a result, you might be wondering if it’s time to switch to an unsecured credit card. You generally have two options: you can ask your card issuer to transfer your secured line of credit to an unsecured card, or you can simply apply for a new credit card and close your secured credit card account. Note that when you close an old secure credit card account in good standing, you get your entire deposit back.
It’s usually easier to just apply for a new unsecured credit card once your credit score is in an acceptable range. This option allows you to choose the right credit card for your needs, whether you want to earn money or qualify for 0% APR and consolidate your debts.
Building credit with a secured card versus an unsecured card
When it comes to establishing your credit score, the process is the same with both secured and unsecured credit cards.
Both types of cards report your movements to the credit bureaus – Experian, Equifax and TransUnion. The bureaus collect information about your purchases, balances, and credit card payments and use it to create a credit usage history on your behalf.
If your goal is to build your credit and keep your score in the best possible shape, you should aim to pay your bill early or on time each month and keep your credit utilization rate below 30%.
Best Secured Credit Cards for 2022
Are you looking for a secure credit card? If so, you should take the time to compare all the best deals to find one with the best benefits and the lowest fees. Bankrate has compared dozens of secured credit cards to find the best deals available, and here are three top options:
Check it out Secure: Best for Daily Rewards
The Discover it® Secured Credit Card is one of the few secure credit cards that allows consumers to earn rewards without charging an annual fee. You’ll earn 2% cash back at gas stations and restaurants (up to $1,000 in combined spend each quarter, then 1%) and unlimited 1% cash back on everything else. Discover it Secured also allows you to set your own line of credit between $200 and $2,500, depending on the amount of deposit you have deposited.
Plus, at the end of your first year, Discover will match any Cash Back you’ve earned. You also get free access to the FICO credit score on your credit card statement each month, which can help you monitor your credit progress over time.
Capital One Quicksilver Secured Cash Rewards credit card: ideal for travelers
The Capital One Quicksilver Secured Cash Rewards Credit Card is a solid option if you want to earn a flat rate of rewards on every purchase – 1.5% cash back on all purchases is a fair rate, even for an unsecured card . There’s also an added perk for frequent travelers: 5% unlimited cash back on hotels and rental cars booked through Capital One Travel.
The minimum security deposit is a reasonable $200 and there is no annual fee. Plus, Capital One makes it easy to get a better score. You can stay motivated by watching your credit score increase over time with Capital One’s CreditWise, and you’ll also be automatically considered for a line of credit increase in as little as six months.
Capital One Platinum Secured Credit Card: Ideal for low deposit requirements
The Capital One Platinum Secured Credit Card lets you get a line of credit with a refundable deposit of $49, $99, or $200, making this card a good option for anyone who doesn’t have a lot of cash. to place. However, Capital One will monitor your account to see if you will automatically be considered for a higher line of credit in as little as six months.
You won’t earn any rewards with this card, but you won’t pay an annual fee to wear it either. You also have the option of choosing your own monthly due date, which can be handy if you prefer to pay your credit card bill at the end of the month or around payday.