6 Differences between Secured and Unsecured Credit Cards (2022)

Are you looking for a credit card? Have you ever had one and defaulted on it. How is your current credit score? The type of credit card you get will largely depend on how good or bad your credit score is. While at it, should you choose a secured or unsecured credit card? Do you know what each of these types of credit cards represents?

These two types of credit cards have similarities, as well as, differences. Whether you get a secured credit card or an unsecured one, you will get a dedicated line of credit. You can use any of these credit cards to make purchases, so long as it doesn’t exceed your credit limit. The more you pay the balance, the higher your credit limit will go.

But what are the key differences between secured and unsecured credit cards? In this write-up, we give you an in-depth look at these two types of credit cards. Here we go.

Need for Collateral

One of the key differences between secured and unsecured credit cards is that the former requires you to deposit an amount of money into your account to serve as collateral. As for the unsecured cards, there is no need to pay collateral. This is the main difference between the two types of credit cards.The collateral on the secured card is meant to ensure your debts are paid just in case you default.

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How the Credit Limit is Determined

To determine your credit limit on a secured credit card, the issuer may consider the amount of money you deposited as you were being issued with the card. For the unsecured credit cards, it is the credit score and payment history that determines whether you should be issued with the card. Your credit limit also relies on that to a large extent.

Payment of Fees and Interest

When it comes to the payment of fees and interest, there is a huge difference between secured and unsecured credit cards. Apart from having monthly or annual fees, secured credit cards charge very high interest rates. The interest rates on unsecured credit cards are determined by how creditworthy you are. Most are offered without monthly or annual fees, except only for those with bigger rewards.

Availability of Rewards

Secured credit cards do not offer any forms of rewards. Not so for unsecured credit cards. The more you use your credit card, the more you qualify for rewards such as cash backs, airline miles, reward points, promotional interest rates, and reduced or removed fees on balance transfer. Although you will not pay fees on unsecured credit cards, those with the highest rewards will charge some fees.

Who Qualifies For the Credit Card?

Did you know that secured cards are ideal for people without a credit history or those who are recovering from bankruptcy? It is a way of proving yourself that you qualify for an unsecured credit card. Some issuers may change your secured card to an unsecured one when they see you making your payments on time. Alternatively, you could apply for an unsecured card after faithfully meeting your obligations on a secured one.

Unsecured credit cards, on the other hand, are only issued to individuals with a good credit rating and history. Without meeting these two conditions, you will not qualify for an unsecured credit card. Your credit score and payment history also determines how much you will qualify for in terms of a credit limit.

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What Happens When You Default On Your Payments

Failure to honor your payments on a secured credit card will mean that the amount you owe will be deducted from the collateral you had paid. That’s why your credit limit is largely dependent on the amount you paid as a deposit.

If you have an unsecured credit card, failure to pay your debts will negatively affect your credit score. That could either mean your credit limit going diminishing or the card being withdrawn, altogether.

So which type of credit card are you looking for? With the foregoing key differences between a secured and unsecured credit cards, you should be able to make a choice that perfectly befits you. If your credit score and history is in tatters, make sure you start by applying for a secured card. With time, you will qualify for the unsecured credit card.


Myrtle Knox

Myrtle Knox is an award-winning reporter, editor, and writer. Her stories about banking, credit cards, insurance, economics, small business, and other subjects have been featured by the Los Angeles Times, Washington Post, Bankrate, Credit Karma, Bookmarks Magazine, FOX Business, CNBC, Yahoo! Finance, and dozens of major U.S. newspapers. Her articles have been cited in seven nonfiction books and two U.S. Congressional hearings. She edits nonfiction, memoir, and fiction, and contributes to Kirkus Reviews. Marcie holds a bachelor’s degree in English from UCLA and MBA from Pepperdine University.

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