Finances (US)

The difference between a secured and an unsecured card!

It's important to know the difference between a Secured and an unsecured card! Read on if you're looking for a new credit card!

Find out how to choose your card based on the difference between them!

Learn the difference between a secured and an unsecured card! Source: Adobe Stock.
Learn the difference between a secured and an unsecured card! Source: Adobe Stock.

A secured versus unsecured credit card: what’s the difference? Do you know? If not, don’t worry because many people don’t. We’ll explain the difference between a secured and unsecured card in this post!

When it comes to their credit score and history, most people don’t even know what a secured card is.

Basically, secured cards are different from unsecured cards in that they require a security deposit before you can start using them.

Also, this deposit is collateral if you don’t pay your bill. This way, the credit card company will be able to trust you better and not be affected in case you don’t pay your bill for some reason.

On the other hand, unsecured credit cards don’t require a security deposit, but they typically come with a higher interest rate. If you are looking for a way to improve your score, then consider a secured card!

woman smiling and holding a credit card

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Now that you know a bit about secured and unsecured credit cards, you may wonder what their main differences are.

Also, you may have even more questions about how to use these cards. Well, we can help you out in this post.

And as we all know, when you’re looking for a new credit card, it’s important to understand the difference between a secured card and an unsecured card.

You need to know what are the perks of each card and understand which one may be best for you at the moment. So, keep reading our post to learn more about secured and unsecured credit cards!

What is a secured credit card?

Learn more about secured cards! Source: Adobe Stock.
Learn more about secured cards! Source: Adobe Stock.

In our introduction, you learned a little about what secured cards are. But now we will give you a more in-depth explanation about this type of credit card.

Secured credit cards require a down payment of a certain amount of money. For nonpayment of credit card bills, the credit card issuer has the possibility of withholding funds from your deposit.

Moreover, one of the best things is that these cards are accessible to those who have little to no or bad credit.

In most cases, you’ll need to deposit $200 to have the deposit limit raised to $200 and so on. However, not all credit cards have this type of option.

Also, with many credit cards, you’ll need to use your credit card responsibly and make on-time payments to keep your credit score up to qualify for an unsecured card without a deposit.

Some of the best-secured cards may allow you to go from a secured to an unsecured card.

In these cases, to get a new card, you’ll have to close your old one and apply for a new one.

However, to get your deposit back from a secured credit card issuer, you must either upgrade your card or close your account in good standing.

Usually, with most secured cards, deposits range from $200 to $1,000, depending on the card.

What is an unsecured credit card?

Know all about unsecured cards! Source: Adobe Stock.
Know all about unsecured cards! Source: Adobe Stock.

Unsecured credit cards make up the vast bulk of the cards available on the market. Because of this, getting a loan may be difficult for those with bad credit.

A cardholder’s creditworthiness is used to determine credit card limits rather than a deposit put down as security with a secured card.

Unsecured credit card providers use individual information such as annual income and a person’s credit score to determine a person’s eligibility.

Since unsecured credit cards are not backed by a deposit like secured credit cards, the issuer of an unsecured credit card does not have the resources to handle any outstanding debt on your account.

Because of this, card issuers look at a range of factors before processing an application to determine whether or not you can pay off the costs you incur on your card.

This way, you’ll only need to check your credit score to be able to apply for one of these cards. If you want the best perks and rewards, you’ll need a high credit score to qualify.

Plus, your credit score can get an impact during the application process for these cards.

four arms holding credit cards

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Can a secured credit card become unsecured?

You’ll need to fit a few requirements, and not all credit card providers offer this type of service. The ones that offer this upgrade to an unsecured credit card need you to fit some requirements.

With most companies, you’ll need to pay all your monthly credit card bills for some time before you qualify for an upgrade to an unsecured credit card.

Moreover, an unsecured credit card shouldn’t be difficult to get for someone who has been paying their bills on time (generally 12 months).

Also, you should get an upgrade just fine if you have a credit score of at least 580 and have maintained your credit usage ratio under 30%.

In addition, when you close your secured credit card account, you’ll get your deposit back regardless of whether you move to an unsecured credit card or hunt for a new unsecured credit card.

This process might take some time since the card issuer has to verify that you have no outstanding obligations associated with your secured credit card.

Plus, you can find out when your security deposit will be refunded by contacting your credit card provider.

What are the main differences between the two options?

After this post, you’ve probably understood all about how secured credit cards work and how unsecured cards work. And now you understand their differences.

But we’ll give you some of the main differences here for you to always keep in mind.

Secured credit cardsUnsecured credit cards
You can get a card with a poor credit score or no score. But you’ll need a deposit.You’ll need to have a higher credit score to qualify.
There are little to no rewards and welcome bonuses.You can find credit cards with some of the best rewards and bonuses in the market.
A lot of expensive fees.Some of them don’t even have fees.
Many credit cards don’t require a credit check.Most application processes will impact your credit score.

Now that you know the differences between a secured card and an unsecured card check out our post below to learn how to increase your credit limit with a secured card!

zoom of many credit cards

Increase your credit limit on a secured card!

You can find out how to increase the credit limit of your secured card by reading this post now!

About the author  /  Victória Lourenço

Victória Lourenço is part of the finance writer team for The Mister Finance website. She is a translator and copywriter, having worked on finance topics for over four years. She has a goal to keep studying finances to help people learn more about how to use their credit cards, make loans, and use other money-related products in a way that they can find a more meaningful and healthy financial life!

Reviewed by  /  Aline Barbosa

Senior Editor

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