Secured Credit Cards vs. Unsecured Credit Cards
Let’s break down the main differences between them!
Credit cards can be extremely helpful on your financial journey, especially if you are trying to build or rebuild your credit.
Depending on your situation, you will have options such as secured or unsecured credit cards, and understanding how they work can help you make the best decision for you.
Secured vs. Unsecured Credit Cards: What’s the Difference?
Both types of cards allow you to make purchases and require monthly payments, but they work a little differently, and knowing these differences can help you decide which one is best for your situation.
What is a Secured Credit Card?
Secured credit cards are like training wheels for your credit. They are perfect if you are just starting out or need to fix a poor credit score.
That’s how they work: you make a cash deposit, and that deposit acts as backing for the bank.
The amount you deposit usually becomes your credit limit. So, if you give the bank $500, that’s what you can spend.
The cool part? If you use your secured card responsibly — making payments on time and keeping your balance low — you will start building or rebuilding your credit score.
The bank reports your activity to credit agencies, and over time, you will see your score increase.
And what about Unsecured Credit Cards?
Unsecured cards are the ones that most people are familiar with, although they typically require a higher credit score.
They do not require any deposit, and if you qualify for one, they often come with benefits such as rewards, lower fees, and better interest rates.
So, why would someone choose a secured card when there are unsecured options available?
That’s a great question! If your credit score is not good or you have no credit history, it can be challenging to get approval for an unsecured card.
That’s where secured cards come in: they provide you with a way to build your credit so that eventually you can qualify for those better offers in the future.
Choosing Between Secured and Unsecured Cards
Your credit score can be an important factor in the decision.
If your score is below 580, it’s probably best to consider a secured credit card because they are easier to obtain if your credit isn’t in the best shape or if you are starting from scratch.
On the other hand, if your score is 670 or higher, an unsecured card could be a better option.
These cards typically offer more perks, such as cash back on everyday purchases (groceries, gas, dining out), and some even come with entertainment benefits.
If you choose to go with a secured card, don’t worry, there are plenty of good options available.
And once your credit improves, switching to an unsecured card will be very easy.
And if gathering a $500 deposit for a secured card seems challenging to you, you can always try becoming an authorized user on someone else’s credit card.
It is a reliable way to build credit without having to save for the deposit.
Transitioning from Secured to Unsecured Credit Cards
So, you’ve been using a secured card and your credit score looks good – what now? You may be ready to upgrade to an unsecured card.
You have a couple of options: you can ask your card issuer to convert your secured card to an unsecured one, or apply for a new unsecured card and close your secured card account.
The good news? If you close your secured card and it’s in good condition, they will refund your deposit.
Many choose to apply for a new unsecured card once their credit improves, as they can then choose a card that better suits their spending habits—whether one that offers great cash rewards or other benefits that align with their lifestyle.
If you enjoyed this content and would like to see more, we recommend clicking the button below to learn more about how to build your credit from scratch.
