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

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secured vs unsecured

If you’re in the market for a new credit card, you’re probably doing some research ahead of time, which is smart. And you’re probably realizing that there are a lot of cards out there — travel cards, cash back cards, hotel rewards cards, gas cards — the list goes on and on. And it can get overwhelming trying to decide which card is right for you.

While it may be a little bit easier to decide if you want some sort of rewards card or not (especially because your eligibility for those relies on your credit scores, which we’ll get to later) you also need to decide if you are looking for a secured or unsecured credit card.

What Is a Secured Credit Card?

A secured credit card is a card that is backed by an upfront cash deposit. This typically acts as your credit limit, meaning your credit limit is usually equal to the amount you put down as a deposit. The issuer may refund this deposit to you later when you close your account or migrate over to an unsecured card (which we’ll talk about next).

Aside from that, secured cards act like any other credit card, in most situations. You can use one to make purchases online or at any stores that accept it. You’ll receive monthly statements detailing how much you owe and when the minimum payment is due.

After you maintain positive behavior for a given amount of time with a secured card, like paying your bills on time each month, your issuer may “promote” you to an unsecured card.

What Is an Unsecured Credit Card?

Now that you know what a secured card is, you probably expect this: An unsecured credit card is a type of card that doesn’t require an initial deposit to use. Because of this, they typically require you have at least fair credit or better, especially if you are looking for an unsecured card with some type of rewards.

However, it is important to note that there are unsecured credit cards for people with poor credit. If you are looking at one of these cards, it’s important to think about your habits. These cards tend to carry higher annual percentage rates (APRs), so if you usually carry a balance, you’ll want to make sure your interest charges can fit into your budget.

No matter what kind of new plastic you add to your wallet, it’s a good idea to take note of the interest rate. These will likely vary depending on your creditworthiness, so this is another good reason to know where your credit currently stands. (Noticing a theme here? Knowing your credit scores is important. Haven’t checked yours yet? No problem — you can do so for free right here on Credit.com.)

Choosing the Right Card for Your Needs

If you are new to the credit world and are working on building credit, secured credit cards are often a good place to start. And if you have bad credit and are working on improving it, a secured credit card is also a good option. If you feel a secured credit card might be right for your needs, it’s a good idea to check with the issuer to make sure they report your credit usage to all three credit bureaus. This way, your positive use of a secured credit card will help you build or improve your credit.

It’s also important to think about the cost of any card you get. Does it come with an annual fee and, if so, is that something you can afford to pay each year? If not, it may be wise to think about your other options. You can always come back to the other card that carries an annual fee once you have a bit more breathing room in your budget or you’ve built up your credit with a secured card. Whatever you do, it’s important to use that new plastic responsibly. After all, your credit card should be a helpful tool, not a harmful one.


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