Differences Between Secured and Unsecured Credit Cards

If you want to apply for a credit card, But you don’t know the difference between secured and unsecured credit cards. Don’t be a worry. We have differentiated the secured and unsecured credit cards for your better understand.

Applying for a credit card is a big financial decision. You have to know that these two cards are different for people with completely different situations. Sometimes, find the actual difference between two credit cards may be difficult.

That’s why here we are to help you to understand which one is best and suitable for you.

Let’s take a lookout for the differences between secured and unsecured credit cards.

Differences between Secured and Unsecured Credit Cards

First of all, if you want to get a secured credit card then you must make a deposit similar to your credit limit, and this is the primary difference between secured and unsecured credit cards.

The secure card is supported by major card networks so that you can use this as a regular card. But you must remember that a secure credit card is not a prepaid card.

To avoid incurring charges, you will need to pay a credit card bill which is very higher than an unsecured card’s interest rates. Using a secured credit card is a better way to build or rebuild a good credit history, whenever you have no credit history or have bad credit.

Unsecured credit cards have lower APRs and they offer rewards, but to get someone approved, you need to have a decent credit score of around 600. So, the better way is to make your decision easier by analyzing the benefits and drawbacks of the different types of cards.

Also Read: How to make a wells Fargo credit card payment?

Secured Credit Cards

Benefits:

  • You can qualify even if you have bad credit: Standing on your own two feet financially is a challenge. Fewer approval requirements make things a little easier.
  • Your deposit is refundable: Paying for a credit card can be off-putting. However, your deposit can be repaid and as long as you pay the balance on time, you will get your deposit back.
  • Makes building a good credit history easy: If you have never used a credit card before or need an improvement in your credit score, a deposit-protected secure card can be a great help.

Drawbacks:

  • No rewards: Some secured credit card providers offer small charges like cash back, but most secured credit cards offer no benefits other than helping you rebuild your credit.
  • No legislation on reporting to credit bureaus: When you take a backup for your credit score, you need to report your activity to the three bureaus. Whereas, all the secure cards do not report to the bureaus. Before you apply for a card ensure that you check with the provider.
  • Need for deposit: It can be very challenging that putting away a hundred dollars on a tight budget. In the end, you get your money back, but it is not convenient.
  • Low credit limit: Your deposit amount becomes your card’s credit limit. Typically, the minimum is $200, but you don’t deposit a few thousand dollars then your credit limit will be very small.
  • High fees: In addition to the deposit, you will have to pay an annual fee to get your hands on a secure credit card. Some card issuers also ask you to pay a monthly maintenance fee and processing fee.

Unsecured Credit Cards:

Benefits:

  • Lower running costs: If you have a good credit history and a good credit score, getting an unsecured card will save you less time. You have to pay less interest and lower fees.
  • Excellent perks and rewards: Using a credit card strategically can make you money. Some cards offer features such as travel benefits and balance transfer deals.
  • Several options: There are hundreds of unsecured credit cards that offer some great benefits. Finding the right one for your lifestyle is not very difficult.
  • Increased credit limits: It is much easier to make large purchases with unsecured credit cards. You don’t have to worry about maximizing your credit card or hurting your usage ratio and then lowering your credit score.

Drawbacks:

  • Widely varying approval qualifications: Not all unsecured credit cards are created the same and credit score requirements vary greatly. Even if you are responsible for your credit, you may not be eligible for the best unsecured credit card.

Which Credit Card Should You Get?

To get an unsecured card, you must have a good credit score and a good financial position. There are so many options to choose from and it’s easy to find a card that offers you the right benefits.

Also, if you have never had a credit card before or have a bad credit score, you need to get a secure credit card. As well as you need to ensure that your budget can support the deposit and other fees.

You should also make sure that the secured credit card receives all three credit bureau reports. It doesn’t matter if your credit report does not reflect all of the challenges you have faced in raising your credit score.

Upgrading to an Unsecured Card

If you prove that you are a responsible cardholder, then you can upgrade to an unsecured card. Get at least one year of responsible expenses under your belt and make sure you pay your dues on time. Also, try to get rid of any debts you may have at this time. Over time, your card issuer will automatically convert your card into an unsecured card and return your deposit to you.

However, if the issuer does not do this for you, wait until your credit score reaches the mid-600s. Once that is done and you have a good credit history, you can request that it be issued to you.

Leave a Reply

Your email address will not be published.