What is the difference between a secured and unsecured credit card?

In this article, we will break down the differences between unsecured credit cards and secured credit cards. The main difference between a secured credit card and an unsecured credit card is that the secured card is funded by you. You must deposit your own money to serve as collateral in case you don’t pay your credit card payments. So your deposit determines your credit limit for the secured credit card.

Unsecured Credit Card Benefits

An unsecured credit card does not require a deposit. The good thing about unsecured credit cards is the freedom of a more generous credit line and your credit standing is reported each month to the three credit bureaus. You may ask, “Why is that a good thing?” It’s great if you’re trying to build credit or trying to repair your credit. It shows you’re reliable in paying your monthly payments on time. Most credit cards that people use are unsecured credit cards.

Secured Credit Card Benefits

You may wonder what the benefit is of having a secured credit card. The benefit of a secured credit card is that almost anyone can qualify for these cards even if you have poor credit. The catch is that the cardholder is required to make a security deposit. Typically, the deposit is around $200, depending on which card company you choose. Some card companies even offer lower deposit amounts like $50 or $99. It’s a good idea to shop around first before deciding on one. The benefit is for people who want to build or rebuild their credit. College students who have no previous credit history may want to start with a secured card to build their credit. People with poor credit may want a secured card to repair their credit. It allows poor credit score (580 and under) customers to prove themselves as credit-worthy by showing they can make their payments.

After placing the security deposit, you’ll be able to start using your secured credit card like you would any other credit card. However, your security deposit amount determines your total credit line available, so pay attention to how much you spend. The security deposit is refundable if you pay off all of your balance and close your account or upgrade to an unsecured credit card.