Credit
October 24, 2018

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

Simple. Thrifty. Living.

Disclosures
Disclosures

Advertiser Disclosure: Many of the listings that appear on this website are from companies which we receive compensation. This compensation may impact how and where products appear on this site. The site does not review or include all companies or all available products.
Editorial Disclaimer: The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.
User Generated Content Disclosure: Responses are not provided or commissioned by any of our advertisers. Responses have not been reviewed, approved or otherwise endorsed by any of our advertisers. It is not any advertiser's responsibility to ensure all posts and/or questions are answered.

Whether you’re new to the credit world or you’re rebuilding your score after a bankruptcy, 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, several things should be kept 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 why they are called 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. You are given 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

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 50,000 bonus points after you spend $4,000 on purchases in the first 3 months. That’s $625 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 60,000 Membership Rewards points after you spend $5,000 on purchases in the first 3 months.
  • Rewards: You get 5X Membership Rewards points on on flights booked directly with airlines or with American Express Travel, as well as on eligible hotels booked on amextravel.com.
  • Features: American Express offers some stellar perks with this card, including Uber VIP status and free rides in the U.S. of up to $15 per month plus a $20 bonus in December, a $200 Airline Fee Credit, 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 $e,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, as well as 10X miles on thousands of hotels when you book at Hotels.com.
  • 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 can still 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 your limit. Secured credit cards have higher interest rates and may require monthly fees or annual fees to keep the account open. Some companies change 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.

Secured credit cards are intended 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.

Capital One Secured MasterCard

  • Best for: People with bad or little credit. Learn more.
  • Features: It works like a regular credit card and is accepted at millions of locations worldwide. Start off with a $200 credit line after you make a security deposit of $49, $99, or $200, determined based on your creditworthiness. This card also helps you build credit by regularly reporting to the 3 major credit bureaus. You can also get access to a higher credit limit after making monthly payments on time for the first 5 months.
  • Fees: There is no annual fee.
  • Learn more about this card here.
  • No comments yet. Be the first to get the conversation started. Here's some food for thought:

    Do you have any thoughts?

Submit a Comment

Your email address will not be published. Required fields are marked *

Advertising Disclosure

Advertising Disclaimer: Simple. Thrifty. Living. does receive compensation for some of the services that we recommend, although we only recommend services that we truly believe are the best.