What’s the Difference Between Secured and Unsecured Credit Cards?

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:

• Airline miles
• Cash back
• Point rewards
• Promotional interest rate periods
• Reduced or eliminated balance transfer fees

Fees for Unsecured Credit Cards

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

• Best for: People who travel a lot or like to eat out. Learn more.
• Welcome offers: The card offers 60,000 bonus points after you spend $4,000 on purchases in the first 3 months. That’s $750 toward travel when you redeem through the cards website.
• Rewards: You get 2X points on travel and dining at restaurants worldwide and 1 point per dollar spent on all other purchases.
• Features: One of the great benefits of the card is you get 1:1 point transfer to leading airline and hotel loyalty programs. You also get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards. There are also no blackout dates or travel restrictions when you book through Chase Ultimate Rewards.
• Fees: The annual fee is $95, but there is no foreign transaction fee, which is great for travels.
• Why get this card: It was named a ‘Best Travel Credit Card’ by MONEY® Magazine.
• Learn more about this card here.

The Platinum Card from American Express

• Best for: The ultimate in rewards. Learn more.
• Welcome offers: The card offers 75,000 Membership Rewards points after you spend $5,000 on purchases in the first 6 months.
• Rewards: You get 10X Membership Rewards points on eligible purchases at U.S. gas stations and U.S. supermarkets, up to $15,000 in combined purchases.
• Features: American Express offers some stellar perks with this card, including Uber VIP status and up to $200 in Uber savings, access to the Global Lounge Collection, and complimentary benefits from Fine Hotels & Resorts with an average total value of $550.
• Fees: Since the card offers so many rewards, the annual fee is $550, but there is no foreign transaction fee.
• Terms Apply
• Learn more about this card here.

Capital One Venture Rewards Credit Card

• Best for: People who travel a lot or like to eat out. Learn more.
• Welcome offers: The card offers 50,000 bonus points after you spend $3,000 on purchases in the first 3 months. That’s $500 toward travel when you redeem through the cards website.
• Rewards: You get 2X miles on every purchase.
• Features: You get up to $100 for your application fee to Global Entry or TSA-Precheck. There is no limit to the miles you can earn and the miles won’t expire as long as you have your account. There are also no blackout dates or travel restrictions.
• Fees: The annual fee is $95, which is waived for the first year, and there is no foreign transaction fee.
• Why get this card: It was named “The Best Travel Card” by CNBC.
• Learn more about this card here.

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.

Differences in Credit Limits

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.

The Best Cards for Bad Credit

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.