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Whether you’re new to the credit world or you’re rebuilding your score after a bankruptcy or other credit issues, it’s important to know the different types of credit cards available, including secured and unsecured. Credit cards have a lot of terminology you may not be familiar with, and knowing these terms is essential to getting the best card for you. The difference between secured and unsecured credit card policies and terms will likely play a large role as you decide which is better for you.
When it comes to secured vs. unsecured credit card options, keep several things in mind. Unsecured and secured credit cards perform the same core function and have many similar terms. You get a revolving line of credit on your credit report from the cards. You can put purchases up to the credit limit on it, and as you pay off the balance you gain access to that amount of credit. The primary difference between a secured and unsecured card is the amount of collateral associated with the account — secured cards require a deposit, and unsecured cards do not — though there are also differences when it comes to fees, rewards, credit history, special offer incentives, and more, depending on the issuer.
An unsecured credit card does not require any collateral to back the credit line; the lack of collateral to secure the amount for the issuer in the event of nonpayment is what makes them unsecured cards. In lieu of a deposit, the credit card company looks at your credit score, history, and other accounts to determine whether you qualify for the card and how large of a credit line to offer. If you have a 600 credit score and want an unsecured credit card, it probably won’t happen. They give you a credit limit and interest rate based on your creditworthiness with the company. Unsecured credit cards often have rewards and other incentives associated with using the card, such as:
Sometimes unsecured cards are offered without fees, though fees are often charged for the ones that offer better rewards. Unsecured credit cards are ideal if you have a good credit history, do not want to pay a deposit, and want to take advantage of lower interest rates, perks and rewards, and generally higher credit limits. Here’s a good list of the best unsecured credit cards. Here’s a good list of the best unsecured credit cards.
Chase Sapphire Preferred Card
The key difference between secured and unsecured credit card offerings is whether a deposit is required. A secured credit card does require some form of collateral associated with the account. Though secured credit cards require a deposit and do not offer rewards, they still can be a better option for people in some circumstances.
Most credit card companies tie the credit limit of an unsecured card to the amount you deposit when opening the account. The more you deposit, the higher the credit limit. Secured credit cards have higher interest rates and may require monthly fees or annual fees to keep the account open. Some companies convert secured cards to unsecured cards after you make on-time payments for a specific period, so secured cards can be a good way to get approval for an unsecured card down the road.
As with prepaid credit cards, secured credit cards are a good fit for people who are post-bankruptcy or have bad credit. You don’t need a good credit score or credit history to qualify for the card, since you’re providing the credit card company with collateral to back the credit line. If you need a positive credit line to rebuild your credit score and can handle paying a deposit along with some fees, a secured credit card is an accessible line of credit for the process. Here’s a good list of the best secured credit cards.
Here’s a good list of the best secured credit cards.