What Are The Drawbacks Of An Unsecured Credit Card
- Stringent qualification requirements Unsecured credit cards require good credit scores and proof of income. You will also need to show your creditworthiness to qualify for the card. Some cards specify the minimum amount you must earn in a month to qualify for the card.
- High bonus threshold Although almost all unsecured cards come with attractive bonuses, they require that you spend a specified amount, which tends to be high to activate the bonus. You will also have to pay with the card regularly to get all rewards and bonuses.
How Do Secured And Unsecured Credit Cards Differ
Secured credit cards are designed for consumers with bad credit who want to enjoy the benefits of credit cards but dont qualify for unsecured cards. They require you to make a minimum cash deposit into an account that acts as collateral against the credit cards credit line.
If you are considering applying for an unsecured card and your credit is bad, a secured credit card may be a better deal. Thats because many secured credit cards have lower APRs and fees than do unsecured cards for bad credit.
In addition, secured credit cards are more likely to offer better rewards and benefits to consumers with low credit scores. For example, the top-rated Secured Sable ONE Credit Card offers cash back rewards, rental car insurance, and cellphone protection, all without annual or late payment fees.
Because secured cards rely on collateral rather than your credit score to approve your application, they are much easier to get than their unsecured counterparts. All secured cards report your payments to one or more credit bureaus, giving you the opportunity to rebuild your credit by paying your bills on time.
If you miss payments or exceed your spending limit, the issuer of your secured credit card will use the money from your refundable security deposit and reduce your credit limit accordingly. Youll have to replenish your security account to restore your full credit line, but multiple incidents may cause the issuer to cancel your card.
Is A Secured Card Or Unsecured Card Better For My Credit
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While secured credit cards are a popular option for building or rebuilding credit, they aren’t necessarily better or worse for your credit than unsecured cards. In fact, the type of card, the card’s fees, the interest rate and whether it’s secured don’t have any impact on your credit scores. It all depends on how you use the card and your overall credit profile.
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Secured Credit Cards Vs Unsecured Credit Cards: Which Should You Choose
Choosing a secured vs unsecured credit card depends on what you plan on using your credit card for primarily.
For people looking to build or rebuild their credit score, a secured credit card is a great tool to help you achieve that while also offering many of the same benefits as an unsecured credit card.
For applicants who already have a strong credit history, an unsecured credit card has the advantage of not needing an initial deposit, as well as greater variety in rewards and perks.
Before applying to a secured or unsecured credit card, consider the cards terms and conditions carefully and be sure that the card aligns with your spending habits and goals.
Unsecured Vs Secured Credit Cards
Whether or not you get a secured or unsecured type of credit card will really depend on if you have a good credit score. If you have never had a credit card, you have no credit history and likely no credit score. If you have had a credit card, loan payment or other credit extended to you in the past and have missed payments, made late payments, or defaulted on a debt, you likely have a poor credit rating.
Your credit score, which takes into account your credit history and spending behavior will typically determine if you are eligible or not for an unsecured credit card. If not, you will need to provide a security deposit and get a secured credit card.
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Get Matched With Your Next Card
If you’re unsure of which card to get, a side-by-side comparison can help. You can use Experian CreditMatchTM to compare cards from our partners. After logging in, you can also get matched with cardswhich can help you determine which cards you may qualify for based on your credit profile. You can also use an Experian account to monitor your credit. If you can use your new card to improve your credit scores, you may be able to qualify for better cards in the future.
Example Of A Secured Credit Card
The Discover it Secured Card is one of the most popular secured cards on the market, and is typical of secured cards when it comes to fees and interest rates.
Discover generally accepts borrowers in the fair credit categorythat is, those with a credit score in the 580670 rangealong with borrowers who have a minimal credit history. The minimum security deposit required to open the account is $200, and the maximum credit limit can be up to $2,500, depending on your income and the ability to pay. After eight months, the account is reviewed to see if it qualifies for transfer to an unsecured card, at which time the borrowers deposit can be refunded.
The Discover it Secured Card offers numerous cash-back rewards and has no annual feejust like unsecured Discover cards. It carries a variable APR of 22.99% as of February 2021.
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Unsecured Credit Cards Vs Secured Credit Cards
Unlike unsecured credit cards, secured credit cards require you to pay a deposit as collateral against the credit line offered. You can think of it as a card that you fund yourself.
Issuers usually require a deposit on a credit if the applicant is generally considered a credit riskmeaning they have no credit history at all or a poor credit score . The credit card issuer has the right to take the deposit that you give in order to cover the debt incurred if you default on a balance.
In some cases, the cardholder may also need to pay an annual fee, as well. However, these cards aren’t as likely to offer rewards programs in exchange for the fee, such as cash back or points toward purchases.
Unsecured Credit Cards
|Don’t usually offer rewards programs|
Can An Unsecured Credit Card Help You Build Credit
Practicing healthy credit habits with a credit card whether secured or unsecured is one of the most effective ways to build credit.
Your payment history is the most influential factor in your credit score, so its important to pay your credit card bill early or on time each month to build a strong positive payment history. And to avoid high interest debt, only charge purchases you know you can afford to pay off in full by the time your statement is due.
Other factors that make up your credit score include the length of your credit history, new credit, and your credit mix, though they arent as influential to your score as payment history or utilization. Boost your credit by maintaining your credit accounts in good standing for as long as possible even if youre not using them and avoiding opening or closing too many accounts within a short time period.
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What Benefits Do Unsecured Credit Cards Offer
Unsecured credit cards give you the option to open a new account without having to put down any money in the form of a deposit, and they commonly offer built-in perks like cash back or reward points. Now some secured credit cards offer rewards, too, but they’re more common with unsecured credit cards.
Furthermore, some unsecured credit cards offer sign-up bonuses. With a sign-up bonus, you get a certain amount of cash back or points for spending a specific amount of money within a preset time frame. For example, you may qualify for a credit card offer where you get $200 cash back for spending $1,000 within three months of opening a new unsecured credit card.
Finally, if you have excellent credit, you might qualify for a good APR on an unsecured credit card. And in that case, if you do have to carry a balance in an emergency, it may not cost you as much.
Should You Apply For A Secured Or Unsecured Credit Card
The best option will depend on your preferences. The difference between secured and unsecured credit card is in application and credit limit. Applying for an unsecured card makes sense if you have a high credit rating and reliable income. A secured credit card is a good option if you are looking to rebuild your credit score and you have some savings to give as a deposit.
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It’s More Than Just Whether A Deposit Is Required
Sienna is a self-proclaimed credit card nerd who has been creating personal finance content for more than seven years. She joined The Balance as a staff writer and is now managing special projects to further engage readers in important topics. Sienna’s work has been cited by major news outlets and government agencies. She holds a journalism degree from the University of Wisconsin Oshkosh.
The Balance / Joshua Seong
If you have bad or no credit, using a secured credit card wisely can help you build a positive credit history. Secured cards are similar in many ways to regular, unsecured credit cards. The major difference between the two is that the secured card requires a depositthats what makes it securedwhile the unsecured card does not.
But thats not the only difference you should be aware of when deciding which type of card is right for you.
How Are Unsecured Credit Card Limits Calculated
When you open a secured credit card, your spending limit is the equivalent of the deposit you put down as collateral. When you get an unsecured credit card, there’s no security deposit to base your spending limit on. Credit card issuers use other factors to see how much spending power to give you. These include your:
- Payment history — if you have a history of paying bills on time, credit card companies may be more willing to give you a higher credit limit
- Income — the more money you earn, the more likely you’ll be to receive a higher credit limit on an unsecured card
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What Does Unsecured Credit Card Mean
When you apply for an unsecured credit card, the credit card issuer will use your personal information, such as annual income, along with your credit score to determine your eligibility. Because unsecured credit cards arent backed by any kind of deposit, like a secured card is, your card issuer wont have access to funds to handle any unpaid debt you have on your account. This is why issuers consider a number of factors to determine the likelihood youll be able to pay off the charges you put on your card before they approve an application.
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Should You Go Secured Or Unsecured
In most cases, its wise to shop around for an unsecured credit card that offers you the lowest rate of interest and best benefits, such as reward points and free insurance or warranties. But, when those conventional credit card options are out of reach, a secured credit card is still a good option. You will have to temporarily provide a security deposit, pay a little more in interest, and be a responsible borrowerbut thats a small price to pay to establish or rebuild a credit score.
Secured Sable One Credit Card
- New! Get a dollar-for-dollar match on all cash back at the end of your first year with Sableâs Double Cash Bonus.
- Earn 2% cash back on everyday purchases at Amazon, Uber, Uber Eats, Whole Foods, Netflix, Spotify, and more! Plus, earn 1% cash back on all other purchases.
- No credit check or US credit history required
- No SSN required for non US citizens
- Build US credit history from day 1 at major credit bureaus
- Get unsecured in as little as 4 months
- No annual fee, no minimum security deposit
- Premium benefits like coverage in the event your covered cell phone is stolen or damaged , rental car insurance, and much more!
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Recommended Secured Credit Cards
There are tons of secured 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 fee and deposits of $200 or less.
Earn 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter. Plus, earn unlimited 1% cash back on all other purchases automatically.
Discover will match all the cash back you’ve earned at the end of your first year
3% intro balance transfer fee, up to 5% fee on future balance transfers *
Foreign transaction fee
- Cash-back program
- Generous welcome bonus
- Starting at seven months from account opening, Discover will automatically review your credit card account to see if you can transition to an unsecured line of credit and return your deposit
- Cash-back program limits earnings: 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, then 1%
- Low credit line prevents cardholders from charging high-cost items or many expenses
This card doesn’t offer cash back, points or miles
N/A for purchases and balance transfers
26.99% variable on purchases and balance transfers
Balance transfer fee
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What Is Secured Credit Card
As mentioned earlier, a secured credit card is designed to cater the group of people who frequently faces a rejection whenever they apply for a credit card. The reason could be lack of income or income proof, poor or no credit history/score, or any other.
A secured credit card, as the name implies, is a credit card issued on some collateral. Just like a secured loan, you need to produce some security to the card issuer to issue the card.
Banks and credit card issuers typically offer secured credit cards against a fixed deposit with them.
Open a fixed deposit and your secured credit card will be issued almost instantly. The banks usually fix a minimum amount that needs to be deposited in the FD account to avail the credit card.
You can get a secured credit card on a minimum deposit amount of Rs.10,000 also.
Capital One Platinum Credit Card
Why this is one of the best-unsecured credit cards: The Capital One Platinum Credit Card is a solid entry-level unsecured card for those with less-than-stellar credit.
You wont pay an annual fee, and after six months of responsible payments, youll be automatically considered for a credit limit increase.
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The Difference Between Secured And Unsecured Credit Cards
Both secured and unsecured cards can be used to make purchases or build credit. Taking a closer look at the difference between secured and unsecured credit cards can help you decide which one might be right for you.
- Deposit: Secured credit cards require a deposit while unsecured cards dont.
- Unsecured cards may offer higher limits than secured credit cards.
- Cost: Secured cards may charge higher interest rates than unsecured credit cards.
- Rewards: Youre more likely to find unsecured cards that offer rewards programs versus secured cards.
- Features: Unsecured cards may also have more features and benefits, compared to secured cards.
- Approval: It may be easier to get approved for a secured credit card than an unsecured card if you have bad credit or no credit.
So whats better, secured or unsecured credit cards?
Using a secured card could make sense if you have limited or no credit history or bad credit. You might be able to use one of these cards as a stepping stone to an unsecured card if youre building good credit history.
On the other hand, if you have fair, good or excellent credit youre likely better off with an unsecured credit card. The higher your credit score, the broader the pool of cards youll have to choose from. You may not escape annual fees or interest, but earning better rewards or unlocking perks like airport lounge access or travel credits can help make up for it.