Key takeaways
- Secured and unsecured cards essentially work the same. Both let you buy on credit and impact your score. The difference is one requires a refundable security deposit and the other does not.
- Secured cards are a good way to establish your improve your score before moving on to unsecured cards with additional perks and higher limits.
- Timely payments and a low utilization ratio positively impact your score and demonstrate financial reliability to lenders.
The difference between secured and unsecured credit cards is simple; one requires a cash deposit and the other does not. Why would anyone want to pay a deposit? Because it gives you access to credit that otherwise is impossible.
Many issuers will not approve applicants with scores below 670. If you have a poor or fair score you’ll have trouble qualifying for cards, especially for ones that don’t charge hefty fees. Your best bet is a secured card.
Let’s go over the benefits each type of card offers so you can choose if a secured or unsecured credit card is for you.
How secured credit cards work?
What is a secured credit card vs an unsecured one? Secured cards require a cash deposit that serves as collateral. This deposit reduces the risk to the issuer making secured ones easier to get. Typically the deposit sets the credit limit. So if you put down a $500 deposit you’ll have a $500 limit. Most issuers set minimum deposits at $200 and maximums at $3,000 but you can find exceptions.
Even though you put down a deposit, you do have to pay your bill each month. If you fail to pay your bill, the issuer will keep money from your deposit to offset what you owe and may charge a late fee. You will get your deposit back when you close your account in good standing meaning all your bills are paid.
Secured cards are a good way to improve your score and often have lower interest rates and fewer fees than unsecured cards for bad credit. Moreover, most secured cards offer the possibility of transitioning to an unsecured one after a period of consistent, timely payments, further incentivizing good financial behavior.
Examples of secured credit cards
Financial institutions know that consumers need help improving their scores so there are plenty of secured cards to choose from. Our favorites have low fees and low minimum security deposits.
How To Apply for a Secured Credit Card
Applying for a secured card is a straightforward process and much like applying for a regular card. Here’s a step-by-step guide:
- Research and Compare Options: Start by researching different secured cards to find one that best suits your needs. Look for cards with low annual fees, reasonable interest rates, and a straightforward path to upgrading to an unsecured card.
- Check Your Eligibility: Ensure you meet any eligibility requirements, such as being at least 18 years old and having a valid Social Security number or Individual Taxpayer Identification Number (ITIN).
- Prepare Your Deposit: Most secured cards require a security deposit that acts as your limit. Determine the amount you can afford to deposit. This deposit is typically refundable and will be held by the issuer as collateral.
- Complete the Application: Fill out the application form provided by the card issuer. This can usually be done online. You’ll need to provide personal information, including your name, address, income, and employment details.
- Submit Your Deposit: Once your application is approved, you’ll be required to submit your security deposit. This is often done through a bank transfer or by providing a check.
- Wait for Approval and Card Issuance: After submitting your deposit, the issuer will process your application. Upon approval, you’ll receive your secured card in the mail, typically within 7-10 business days.
- Use Responsibly: Use your secured card responsibly by making on-time payments and keeping your balance low. This will help you build a positive payment history and potentially qualify for an unsecured card in the future.
By following these steps, you can successfully apply for a secured card and start working towards improving your score.
What is an unsecured credit card?
Traditional credit cards are unsecured meaning they don’t require a security deposit. These cards are more common and often come with rewards and perks. Consumers normally have to have a score of 670 or higher to qualify. The limit varies but is typically determined by the issuer based on the cardholder’s creditworthiness and income.
Not all unsecured cards are out of reach for consumers with poor credit. Subprime cards have lenient requirements making them easy to qualify for but they also tend to have low limits, high interest rates, and additional fees. The additional fees help protect the issuer in case consumers default – fails to pay their bill.
Examples of unsecured credit cards
Our choices for unsecured cards include ones that offer cash back rewards and emphasize score repair.
Don’t see a card you like?
Do I get my deposit back with a secured credit card?
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Yes, you typically get your deposit back with a secured card, but certain conditions apply. The security deposit you provide when opening a secured card serves as collateral and sets your limit. This deposit is refundable, provided you manage the card responsibly.
When You Get Your Deposit Back:
- Card Upgrade: Many issuers allow you to upgrade from a secured to an unsecured card after demonstrating responsible financial behavior, such as making timely payments and maintaining a low balance. Upon upgrade, your security deposit is usually refunded.
- Account Closure: If you decide to close your secured card account, you will receive your deposit back, assuming you have paid off your balance in full and the account is in good standing.
Conditions for Refund:
- Good Standing: Ensure your account is in good standing, with no missed payments or outstanding debt.
- Full Balance Payment: Your entire balance must be paid off before the deposit is refunded.
While the deposit is held, it does not earn interest, and any late payments or defaults can affect the return of your deposit. Proper management of your secured card can help you build a positive payment history and eventually retrieve your security deposit.
Secured credit cards vs. unsecured credit cards
The following chart explains the biggest differences between secured vs unsecured credit cards.
| Unsecured Cards | Secured Cards | |
|---|---|---|
| Average APR | 24.9% – 34.49% | 0% – 30.49% |
| Minimum Recommended Credit Score | Usually 670 or higher | No credit history or scores below 669 |
| Annual Fee | $0 – $99 | Typically not |
| Deposit Required | No | Yes |
| Helps Build Credit | Yes | Yes |
| Rewards | Yes with many but not all | Sometimes |
The choice between a secured vs unsecured credit card ultimately depends on one’s score and financial situation.
How To Apply for an Unsecured Credit Card
Applying for an unsecured card is straightforward. First do your research and compare cards so you find one with benefits you want and fees you can afford. Next, confirm that you qualify – check your score and prequalify – then apply.
You can typically apply online. The issuer will ask for your name, date of birth, Social Security number, address, email, phone, employment details, and income. Some may also inquire about monthly housing costs and other financial obligations.
After submitting your application, the issuer will perform a hard inquiry. This will cause your score to dip – it should bounce back in a few months to a year. If approved, the issuer will mail your card. Many give you your number right away so you can begin using it instantly.
How can credit cards help your credit?
Credit cards help your score because when you use them you are essentially borrowing money. Swipe your card and the issuer pays the merchant directly for the purchase. No money comes out of your bank account.
At the end of the billing cycle, the issuer will send you a bill for your purchases. You only have to pay the minimum – typically 2% of the total balance or $25, whichever is more. When you pay your bill on time you demonstrate that you are reliable and can be trusted to repay what you owe.
Your score is a digital representation of your creditworthiness or how much you can be trusted to repay money you borrow. When you buy with credit – doesn’t matter if it’s a secured credit card or unsecured – and pay your bill on time, you show that you’re responsible and reliable.
Build or rebuild your credit
The choice between a secured or unsecured credit card for rebuilding credit hinges on your current financial situation and how poor your score is. Secured cards are easier to qualify for but require a security deposit. Unsecured ones are harder to qualify for and many come with fees. Either way, both can help boost your score and follow the same rules:
- Pay bills on time
- Keep your utilization below 30%
- Apply for new accounts sparingly
- Maintain a mix of cards and loans
- Don’t close old accounts
Establishing a long history of on time payments is the best thing for your score. Set up autopay so you never miss a bill and only make one or two purchases per month. This way you keep your bill affordable and never use more than 30% of your available credit line.
Boosting your score takes time – up to a year depending on where it was to begin with. Don’t be discouraged, just keep up the responsible behavior.
Here at MoneyFor, we can help you understand your score and learn how to raise it.
Frequently asked questions
Bottom line
The choice between a secured vs unsecured credit card depends on your score and financial situation. If your score is poor or fair – anything below 670 – then you are likely better off applying for a secured card – if you can afford the deposit. Not everyone can. That is why there are unsecured cards for low scores.
Either way, make sure you compare offers and find the best card with the lowest fees that fits your needs. Use it responsibly to improve your score and you’ll be able to qualify for a better card with rewards in the future.
