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.
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.
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.
Consider a secured card if:
Consider an unsecured card if: