Secured vs Unsecured Credit Cards

If you’re trying to decide what credit card to apply for, you may be wondering: do I need a secured credit card or an unsecured credit card. Read on to discover how they work, the difference between secured and unsecured card, and which might be best for you. 

Secured Cards  

A secured card requires that the cardholder pay an up-front deposit before using the card. The deposit is equal to the credit limit on the card. After that, you can make purchases and pay your monthly statement as you would with a normal credit card. When you close the account, the up-front deposit will be returned to you. Some card issuers also will also return your deposit after certain conditions are met—for example, if you make six consecutive months of on-time payments.  

People with a low credit score or limited credit history may choose a secured card if they are unable to get approved for a typical, unsecured credit card. Secured cards are specifically designed for people who don’t have a strong credit history. By using a secured card, the cardholder can build their credit without the overspending risks that come with an unsecured card.  

Unsecured Cards 

Most credit cards are unsecured. An unsecured card simply means you don’t pay an up-front deposit to use the card.  Unsecured cards tend to offer the best benefits: from cash-back rewards, to travel perks, to lower fees. The higher your credit score, the more likely you are to qualify for an unsecured card, and to get a card with the most perks.  

With a secured card, it’s hard to overspend because your credit limit is equal to your initial deposit. If spending goes over that limit, the transaction won’t be processed. However, with an unsecured card, it’s your responsibility as the cardholder to manager your spending. If spend too much and then can’t pay your statement balance, interest will be added onto your debt until you can pay. Credit card debt can become overwhelming very fast.  

Which Card to Choose? 

Consider a secured card if: 

• You have a credit score of 669 or below 
• You’re trying to build (or rebuild) your credit history 
• You don’t feel ready for the risks of an unsecured card 
• You don’t qualify for mainstream, unsecured cards 

Consider an unsecured card if: 

• You have a credit score of 670 or above 
• You have a strong credit history 
• You understand the risks of spending on credit 
• You feel confident managing monthly bills and paying your statement balance in full  
• You’re looking to earn cashback rewards and other perks
  
  Whichever card you choose, take the time to learn about credit, debt and healthy payment strategies before applying for a credit card. Visit the Harvard FCU blog to read about choosing a first credit card, how to stay in control when spending on credit, credit card balance transfers and lots more.