Secured vs Unsecured, What’s the Difference?

If you’re considering applying for your first credit card, or trying to repair your credit card history, you’ve likely come across the term “secured” credit card. What is a secured credit card? How does this differ from an unsecured card? Each type of card targets different users and have their own set of risks and benefits.

Secured vs Unsecured

One way to categorize credit cards is to look at them as secured vs unsecured. A secured credit card is backed by a cash deposit you pay after you’ve been approved. The initial deposit is collateral for the account. This means that the issuer can use those funds if you’re unable to pay the bill. This is what makes secured cards a good option for those with no or damaged credit. Deposits generally determine the credit limit. Most deposits start around $200.

securedAn unsecured credit card is not backed by a deposit. Without a deposit, you have more freedom to spend on the card. If you miss a payment, the issuer can come after o you instead of using the deposit. This is makes unsecured cards more suitable for those with more credit card experience. The credit limit is determined based on factors like your credit score and payment history. Unsecured cards usually have lower interest rates than secured cards.

So, how does an unsecured credit card work? Because an unsecured card doesn’t require a deposit, qualifying for one will depend on your payment history, credit score, and credit report. Usually you need an average to excellent credit score to qualify for an unsecured credit card. If you do get an unsecured card with poor credit, you’ll have higher rates and fees.  Like secured credit cards, you can use an unsecured card to rebuild your credit. Both cards pose different benefits and risks. Deciding which is best for you will depend on your personal finances and spending habits.

Posted in Credit Cards.