When searching for the right credit card the terms secured and unsecured may pop up from time-to-time. Many consumers find these terms confusing without further explanation nearby. Some wonder if it has to do with the “security” of a credit card. Is one type of card more secure than another? It actually has nothing to do with a card’s security from hackers and scammers at all.
Here we clear up the confusion by explaining the key differences between a secured and unsecured credit card.
Unsecured Credit Cards
An unsecured credit card is the type most people are familiar with. It doesn’t require cardholders to put any collateral down to establish a credit line. An individual or business can sign up for unsecured credit cards received in the mail by filling out and returning the paper application with the supplied envelope, in-person at the bank or credit union, over the telephone, or online.
Consumers and businesses can also search for and find credit card offers to apply for on the Internet. If an applicant has strong credit, they will most likely be approved for an unsecured credit card. However, the interest rate, credit available, and specific card type will be dependent on the person’s credit history and score.
Secured Credit Cards
When businesses or consumers are first establishing their credit, or their credit has a less than ideal track record, it may be more difficult to get approved for an unsecured card. This is where secured credit cards come into play.
A secured credit card is best for people with a spotted credit history or no credit history at all. It requires the applicant to put some form of collateral down that is typically a fully refundable cash deposit of a few hundred dollars to receive a credit line and card to use.
If someone has been declined for an unsecured or retail store charge card, then a secured card might be a good option for them. They’re accepted by most merchants exactly like the unsecured cards, and they are offered by many of the same big issuers, banks, and credit unions.
A secured credit card can also help people build or rebuild their credit because the card’s available credit, activity, and monthly payment history are reported to the three major US credit bureaus, and taken into account when calculating a new credit score.
Just be sure to do your research before applying and always read the fine print before accepting the final terms. You might have to pay a little more in fees and interest with a secured card, but don’t get sucked into thinking you have to accept a really bad deal.
Pay off the balance each month and there will be less to worry about. Pay it, along with your other bills on time for the next six to 12 months and you’ll have a better chance at getting approved for an unsecured credit card sooner rather than later.
Final Thoughts on Secured vs Unsecured Credit Cards
If your credit is in good standing, you will often receive the best perks and benefits with an unsecured card. That includes cards for businesses, students, and personal credit cards with cashback rewards, airline miles, points, introductory APRs, and balance transfer offers. You should be able to find both secured and unsecured credit cards that are part of the Visa, MasterCard, Discover, and American Express networks.
