Personal Growth

What is the Difference between Secured and Unsecured Credit Cards?

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If you’re in the market for a credit card, you’ll come across numerous options and offers. However, all of them can be divided into two categories: secured and unsecured credit cards. What do they mean and who should apply for them? Read on to find out the answers.

Secured cards are backed by a certain cash deposit you have to supply in advance. The deposit amount represents the credit limit when initiating such a card. It’s possible to add backing funds to that amount to raise the credit limit. People with a good credit score and trustworthy payment history are privileged to increase their credit limits without adding any funds.

One of the quickest ways of building good credit is to apply for a credit card; however, it’s often impossible to get any credit card if you don’t have good credit. This is a so-called catch-22. A secured credit card can help those with a short credit history or bad credit score to avoid this paradox.

About unsecured credit cards, there’s no collateral involved. The credit limits are mostly based upon the credit risk that implies a variety of traditional factors such as payment records, credit reports, credit score, as well as other things that indicate your playability.

credit cards

Hence, the key difference between unsecured and secured credit cards is a deposit – if it is required or not. If you go for a secured credit card, note that it requires some collateral that correlates to your account. One may ask: Why does my card provider require collateral? You may have a bad credit score or be a novice at using credits. If so, your lender will treat you as a risky borrower. Collateral makes the lenders more willing to lend, as they know you will repay your debts if any.

Unsecured credit cards, on the other hand, do not require any deposit. Aside from that, they often include rewards as well as other incentives like:

  • Cashback solutions
  • Airline miles
  • Point rewards
  • Reduced balance transfer fees
  • Promotional interest rate periods

Many people prefer unsecured credit cards because they don’t have to spend their own money while using these cards. They borrow money from their banks in the beginning. That means you take out a loan whenever you buy something with your card. Bear in mind that you are expected to repay it to build up a good credit history.

Pros and Cons

Both secured and unsecured cards come with their advantages and disadvantages. Let’s break them down.

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Unsecured credit cards


  • You don’t have to pay out money right away
  • A lot of rewards programs
  • Lower interest rates
  • No security deposit


  • They often include various fees like application, set-up, and membership fees
  • Poor terms for people with weak credit
  • Unwise spending

Secured credit cards


  • You can set a credit limit as per your needs
  • You can get one no matter you already have a damaged or new credit
  • Rebuild credit score
  • No annual fees


  • They usually come with higher interest rates
  • They imply a security deposit
  • Your deposit limit the credit

What Are the Limitations When Using a Secured Credit Card?

The credit limit differs from card to card. Generally speaking, it is not possible to use deposited funds if secured credit cards are active. This means you need to close your account to get the funds back.

credit cards

Normally, your limitations will be determined by the deposit amount. If your deposit is higher, you will be able to borrow more. Some providers imply credit limits that match the deposit. Others offer slightly higher credit limits.

So, it’s wise to compare different secured card offerings. Keep in mind that most of them involve fees. Be wary of fees as they can take up a significant amount of available balance.

Make certain that the activity of your credit card is recorded to the credit bureaus. Some cards don’t report credit limits to the credit reporting agencies. That may negatively affect your credit score. What’s more, you won’t be able to rebuild your credit by any means if it isn’t reported properly.

What Unsecured and Secured Cards Have in Common?

As you can see, the only important difference is the security deposit. Besides, most secured cards charge an annual fee. Is there any common feature worth mentioning?

Whether you choose an unsecured or secured card, your provider will notify the 3 major credit bureaus about your payment history. Once these credit reporting agencies have collected information on your account, they will sell it to businesses.

That enables users of secured cards to improve their credit score over time. It goes without saying that you are supposed to make your payments on time. Why do on-time payments matter? After a year, you can apply for a standard, unsecured credit card.

How to Qualify for an Unsecured Credit Card?

In most cases, you’ll be required to have a good credit score and history to get an unsecured credit card. There are some cards that can do the trick. These cards feature high APR and low credit limits. That’s how the providers minimize the risks of lending with no security. With the help of such a card, you can gradually rebuild and improve your credit history as time progresses. Of course, you are supposed to use it responsibly.

For example, the First Access Card is a great option for people who have a hard time getting an unsecured card due to poor or fair credit. Prepaid debit cards are much the same as secured cards. You’re required to pay money beforehand to start using the card. Typically, these cards come with an American Express, Visa, or MasterCard logo.


So, which credit card is right for you? Don’t rush. Take stock of all options available before settling on one choice. If your main goal is to build a credit score, go for a secured card. Otherwise, you can consider applying for an unsecured card and benefit from different rewards programs.

All of them can be divided into two categories: secured and unsecured credit cards. What do they mean and who should apply for them?

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