Credit card providers offer two types of cards; secured credit cards and unsecured credit cards. The cards target individuals with various requirements and credit scores. We recommend that you learn the difference between secured and unsecured credit card before you start applying for a credit card to increase your chances of approval. Whenever you apply for a credit card, the provider does a credit score query, which negatively affects your score rating. Knowing the right card to apply for increases your chances of approval and minimizes the number of hard queries on your report.
Secured credit cards are easier to qualify and usually target people with fair and bad credit scores while unsecured credit cards target people with higher credit score ratings. Both secured and unsecured credit cards are functional and can help you build or rebuild your credit score. However, they have several differences that you must understand before you choose one over the other. We will look at the difference between secured and unsecured credit cards and which card you should apply for as per your needs and score ratings.
What Is A Secured Credit Card And How Does It Work?
If your goal is to rebuild your credit score, you will find it easier to qualify for a secured credit card than an unsecured card. Card providers are willing to offer secured cards to people with lower credit scores as long as they meet other application requirements. You may find secured cards for individuals with bankruptcy or without credit scores. The main difference between secured and unsecured credit cards is the fact that an applicant has to give a security deposit that reduces the risk for the provider in a secured card, which increases the chances of approval. The amount you put down as a security deposit varies among different secured credit cards and providers.
Secured credit cards work like any other credit card. You will have to make a minimum payment on your charges every month. You cannot use the deposit to pay for your monthly charges. The card provider holds the deposit and will only return it if you close the card. Failure to pay the balance on time will attract an interest rate charge and you may also be liable for additional charges, depending on the terms and conditions of your card. We advise that you thoroughly review and compare different secured credit cards to help you find the best for your needs. Different secured cards have varying terms and conditions, including deposit amount, cash limit, APRs, annual fees, and rewards.
Why Should You Apply For A Secured Credit Card?
Before you apply for any credit card, we recommend that you review the benefits it offers to cardholders. Almost all credit cards will help you build or rebuild your credit score. They will also help you purchase items and pay the balance over time. Keep in mind every card provider includes perks that make their card competitive. That said, some of the reasons why you may consider applying for a secured credit card include:
- Easy, quick approval – It is easier to apply and open a secured credit card. Depending on the provider’s terms, you may only need to demonstrate your identity, put a deposit down and walk out with your card. Some providers do not require background checks or credit score rating inquiries to approve a secured card.
- Refundable deposit – The amount you give as security is refundable. Some banks even offer interest on your deposit. As long as you make your payments on time, the lender will give the deposit back if you decide to close the account.
- Build credit rating – Although financial institutions prefer customers with high ratings, they understand that everyone needs a chance. Secured credit cards help people with bad credit or no credit rebuild their scores and qualify for premium cards.
- Flexible account limit – The secured card usually offers ways that you can increase your account limit. The limit depends on your deposit. Putting down a higher deposit increases your limit.
- Opportunity to upgrade your card – Most secured credit cards offer an opportunity to upgrade your card to a premium option after some time.
What Are The Drawbacks Of A Secured Credit Card?
Despite the flexibility and ease of application, the secured credit cards have a few drawbacks that you should consider before applying.
- Deposit requirement – The difference between secured and unsecured credit card is that you will need to put down a cash deposit to qualify for the card. The amount you give will determine your credit limit, which is a major drawback for people without cash savings.
- Smaller credit limits – Most secured credit cards have a lower credit limit than unsecured cards.
- Higher interest rate – Since they target people with bad credit, most secured cards carry higher APR rates, which is not good for people who would like to have a month-to-month balance.
What Is An Unsecured Credit Card And How Does It Work?
You will likely get approved for an unsecured credit card if you have a higher credit score. The application process is strict as the approval is trust-based. You do not need to give any security to qualify for an unsecured card. Due to the larger risk that comes with unsecured credit cards, the lender must determine your creditworthiness before approving your application. The card provider will need you to have a high credit score, proof of income, and overall financial health to consider your application.
Before you choose an unsecured credit card, it is important that you review what the card offers. You will not likely find two cards with the same aspects. You must consider your needs and the suitability of the card before you apply for the credit card. Although most credit cards have attractive perks, there are requirements that you must meet to redeem the benefits. For example, you will need to make purchases of a certain amount within a specific time to redeem the signup bonus. Choosing a card with the highest rewards and bonuses does not make sense if you will not meet the requirements needed to redeem the offers.
Furthermore, you must make timely payments to benefit from the special offers. For you to benefit from a deferred payment, you must clear the balance within the specified time, otherwise, you will pay the full interest rate amount even if you are late by a week. Secured credit cards work like any other card. You must clear all the balances to avoid paying interest. Late payments will also negatively affect your credit rating.
Why Should You Apply For A Secured Credit Card?
A secured credit card will help you rebuild your credit score if you make payments on time. That said, some of the reasons why may consider applying for a secured credit card include:
- Lower interest rates – Lower interest in an unsecured card is a major difference between secured and unsecured credit card. Since unsecured cards are for creditworthy people, they tend to have lower interest rates than secured cards. It is possible to find a credit card with differed interest for up to 12 months if you buy items of a specific amount.
- Attractive reward programs – Unsecured credit cards tend to have a wide range of generous reward programs. You can find a credit card with an attractive welcome bonus and reward points and cashback, which enables cardholders to earn money back for their purchases.
- A wide range of categories and options – Secured cards come in a wide category, which makes it easier to find a dedicated card for your needs. Travel cards have generous travel perks, including airport offers, hotel discounts, and support foreign transactions. The best credit cards for everyday purchases have attractive cashback offers for groceries, dining, and gas.
- Higher credit limits – Unsecured cards have a higher credit limit than most secured cards. The high credit limit makes it easier to fund large purchases without hurting your credit utilization ratio.
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.
Guide On The Difference Between Secured And Unsecured Credit Card
Both secured and unsecured credit cards work in the same way. You must pay the balances on time to avoid penalties. You also cannot surpass the credit limit. Moreover, the cards can help you build or rebuild your credit score with timely payments. That said, the cards have unique aspects that make them suitable for the needs of different people. We will help you choose the right credit type by highlighting the difference between secured and unsecured credit card. Some of the notable secured and unsecured credit card differences include:
- Application – Secured credit cards have an easy application process while the unsecured card application process is rigorous.
- Requirements – Secured credit cards have a few requirements depending on the card as you only need to register and give a security deposit to activate the card. On the other hand, unsecured credit cards have many requirements as you must demonstrate your creditworthiness and earnings during the application process.
- Credit score – Unsecured credit cards only accept people with the highest credit scores while secured cards may accept people with fair and bad credit scores.
- Deposit – Unsecured credit cards do not require any deposit, but it is a requirement for every secured credit card.
- Interest rate – Unsecured cards have a lower interest rate than secured credit cards. You can also find unsecured credit cards with deferred interest.
- Rewards – Although both secured and unsecured cards may have reward programs, the rewards are higher and attractive in unsecured credit cards. Unsecured credit cards have many generous reward programs that can help you earn with every purchase.
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.
Which Is The Best Secured Credit Card?
OpenSky Secured Visa Credit Card
OpenSky Secured credit card is one of the best cards you can apply for if you are looking to rebuild your credit score. The card has a flexible deposit requirement of between $200 and $3000, which allows applicants to determine their credit limit. It has a reasonable regular APR of 17.39 percent and an annual fee of $35. OpenSky Secured Visa card does not require a credit check and reports to all three major credit bureaus, which makes it perfect for building credit.
- 17.39% regular APR
- No credit check
- $35 annual fee
- Flexible deposit and credit limit of between $200 and $3000
Which Is The Best Unsecured Credit Card?
Capital One QuicksilverOne
Although most unsecured credit cards require high credit ratings, the Capital One Quicksilver One is a perfect solution for people with average credit ratings. The card offers unlimited 1.5% cashback on all your purchases, which allows you to earn whenever you pay with the card. Cardholders get automatically considered for a higher credit line in as few as six months. It also comes with $0 fraud liability if the card is stolen or lost.
- Unlimited 1.5% cashback on every purchase
- $0 fraud liability for a lost or stolen card
- No cash back limits
- $39 annual fee
- 26.99% variable APR
Whether you should go for a secured or unsecured credit will depend on your preferences and eligibility. The difference between secured and unsecured credit card is the security deposit that you must put down to get a secured card. On the other hand, unsecured credit scores require higher credit scores and reliable income.