What Is The Difference Between Unsecured Credit And Secured Credit Cards

Kreg Bale
Kreg Bale October 16, 2020
Updated 2020/10/16 at 6:13 PM
What Is An Unsecured Credit Card

A secured credit card is one which requires that the cardholder makes a security deposit. They are generally used by applicants with damaged or no credit history. Your credit line will very likely fall between 70% to 100% of your security deposit, still depends on the worthiness of your credit. So, what is an unsecured credit card?

An unsecured credit card is a credit card that requires no security deopsit. They are basically for applicants who have built a good credit history. This type of credit card is also imbued with great rewards programs for cardholders which include miles, cash back, and points.

What Is An Unsecured Credit Card
What Is An Unsecured Credit Card

Also, some secured credit cards (depends on who is issuing) require only a deposit for a specific timeframe, such as 12 months. If you have a good payment history within that period of time, the issuer may consider increasing your credit limit or consider to offer an unsecured credit card with better rewards and terms that are more favorable

Secured credit cards have a purpose to help you with rebuilding credit. Unsecured credit cards can be quite costly that their actual worth.

While secured credit cards may appear just like the regular credit cards, they however need to be opened with a security deposit. They are also marketed to interested applicants with bad or no credit. 

However, some unsecured cards marketed to prospective users who possess fair credit some how have issues with getting approvals for prime credit card accounts.

But then, why do  some opt for the secured credit as against an unsecured credit card which they might receive approval for without a security deposit?

Here’s What You Should Know About How Credit Cards Work

Imagine you were given $500 by a friend, and they still came for a $500 loan. Since you are holding their money, there is no risk on your own part. This is what banks do with offering applicants the secured card.

Applicants will be eligible for account opening only when they make submission of refundable security deposit. The card issuer holds the cash but would be used only when the cradholder consistently fails to pay into their account. This can also be referred to as default.

Secured credit cards receive monthly statementsand have an expeced due date before which a cardholder must make payment. Most of them come with a period of grace for cardholders to ward off paying interest charges when they pay their statement balance in full.

As an alternative, secured credit cardholders can incur interest chrges while carrying a balance. But more importantly, secured cardholders should be informed that their issuers will not use their security deposits as a settlement for their monthly payments. They are only there as a final resort for the bank if it turns out that you repeatedly fail to sort payments. 

So, it is only after paying your balance and closing your account before you’ll be entitled to a refund of your security’s deposit.

Similarities Between Secured And Unsecured Credit Cards

The only significant difference between the secured and unsecured credit cards is the security deposit. And so long a secured card holder makes deposit for the opening of a secured account and it is opened, the credit card functions just like any other.

Many secured cards charge a fee per year, but then, some others do not. The Bank of America® Secured Card requires a $39 yearly fee but Capital One® Secured Mastercard® and the Discover it® Secured require no annual fee.

It is worth noting thatsecured and unsecured card issuers both make reports of the history of your payments to three key consumer credit bureaus. This moves helps in the improvements of secured card users’ credit as long as they do not default in their payment. And most secured card users will be opportune to receive a standard, unsecured card after a year of timely payments. Some others, like the Discover it® Secured, offer automatic reviews of accounts after just eight months.

If you are trying to improve your credit, you should avoid unsecured card. And here is why:

If you are looking for a credit card to sort out your credit issues, it is likely that you have come across standard, unsecured cards which also part of the sub-prime market.

Some of the unsecured cards, like ones marketed by Credit One Bank and other cards, are not going to be needing a security deposit. They however will have other issues and drawbacks.

An instance is the subprime credit cards which can require high charges yearly. In fact some of them can be more than $100 per year. And they will very likely be bille per month to cover up what the true cost is actually.

Subprime cards also come with other fees, including a high interest rate. The fees can be much more costly than a secured card’s security deposit, and are also not refundable. Some sublime cards do not come with a period of grace. And that implies that there will be interest charges on your purchases, and that is even if your statement is made in full.

So, what is an unsecured credit card and how is it different from the secured credit card? While the key points are already highlighted, the secured creit cards require a security deposit and provides avenue for the safest and widely affordable path to have or correct a credit history, by making timely paments. Unsecured credit cards are more risky and expensive for those having less than perfect credit.

You should consider a secured credit card to improve your credit score or build a credit from the start. However, whichever one you opt for, ensure to retain a better credit by full paying your balance off every month.

If you need to build credit from scratch or improve your score after past credit problems, give secured credit cards a chance. It’s hard to go wrong with an option like the no-annual fee Discover it® Secured with its cash back and automatic account reviews after eight months.

Whichever kind of card you’ll want to make sure you pay your balance off in full each month if you really want to build better credit


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