The world of credit cards comes with many terms—fees, cashback, rewards, redemptions, and more.
Two key terms refer to the type of card itself: secured and unsecured. These are two popular credit card options not just in the U.S. but worldwide.
Want to understand the differences and see which one suits you best? Keep reading to learn all about these card types.
Secured credit cards: What are they, and who are they for?
Definition of secured credit cards
A secured credit card requires an initial cash deposit. The cardholder must provide a financial deposit equal to their monthly credit limit when the card is issued.
This deposit ensures the credit card issuer that the cardholder can cover their balance. If you pay your bill in full every month, the deposit remains untouched.
However, if you miss payments, the issuer uses the deposit to cover the debt and may block the card.
Over time, the financial institution might request additional deposits, especially if you maintain regular spending for several months.
Requirements for a secured credit card
The main advantage of a secured credit card is its minimal requirements.
These cards are designed to help individuals build credit, so you don’t need a high credit score to apply.
Additionally, most issuers don’t require a high income, making secured cards accessible to many.
Who should apply for a secured credit card?
Secured credit cards are ideal for those new to credit or looking to improve their credit score.
While these cards typically don’t offer as many perks and rewards as unsecured cards, there are still good options available.
Unsecured credit cards: What are they, and who are they for?
Definition of unsecured credit cards
Unsecured credit cards are the traditional type of credit card most people are familiar with.
These cards don’t require a security deposit, and the credit limit is determined based on your credit history and income.
They are the most common credit card type, relying on your creditworthiness to provide access to funds.
Requirements for an unsecured credit card
Unsecured credit cards typically involve credit checks, and the score required depends on the card’s benefits.
For example, student cards may have lenient requirements, while premium cards often demand an excellent credit history.
Financial institutions also assess income to determine an appropriate credit limit.
Who should apply for an unsecured credit card?
Unsecured cards are suitable for anyone with an established credit history, though the specific requirements vary by card type.
These cards don’t target a specific audience and can work well for individuals at different financial stages.
Can you switch from a secured credit card to an unsecured one?
Yes, and this transition happens in several ways. You can improve your credit score and apply for an unsecured card with better benefits.
In many cases, the financial institution itself may offer you an unsecured credit card after a certain period of responsible use with your secured card.
The key is to always pay your bills on time and avoid late payments.
Advantages and disadvantages of different credit card types
Here’s a quick summary of the pros and cons of both secured and unsecured credit cards.
Secured credit cards pros
- Easy approval process
No credit history required
Flexible credit limits
Helps build your credit history
Secured credit cards cons
- Requires an initial security deposit
Fewer generous perks and rewards
Lower credit limits
Higher interest rates
Limited options compared to unsecured cards
Unsecured credit cards pros
- Higher credit limits
Lower interest rates
More benefits and rewards
Wide variety of cards for different profiles
No security deposit required
Unsecured credit cards cons
- Requires a credit score check
Requires income verification
Approval can be more challenging
Which is the better choice?
The best option depends on individual circumstances, including credit score, income, and life stage.
In general, unsecured credit cards are more effective and offer greater benefits, but secured cards remain a solid choice for building credit from scratch.