Secured Credit Cards vs Unsecured Credit Cards

Credit cards can be either secured or unsecured. With responsible use, a secured card can help you establish a credit history and help build your reputation as a borrower.

An unsecured credit card may make more sense if you already have good credit and don’t want to put down a security deposit.

Let’s learn more about the differences between secured and unsecured credit cards.

What is a secured credit card?

A secured credit card requires the applicant to make a security deposit before they’re able to use the card. This cash deposit is collateral. The card issuer may keep the deposit if the cardholder doesn’t pay their due balance.

Depending on the secured credit card, responsible card use may also help you build credit. Getting a secured credit card may be a smart and strategic choice for those who have little or no credit history and want to start building their credit.

What is an unsecured credit card?

Unsecured credit cards are likely what you think of when you hear the term "credit card." Unlike a secured credit card, an unsecured card doesn’t require a security deposit. For this reason, credit card issuers may require better credit to approve unsecured credit card applications. Your income may also be considered. 

Unsecured cards may come with more perks, such as the opportunity to earn cash back or miles.

What is the difference between secured and unsecured credit cards?

The core difference between these types of credit cards is the cash deposit requirement for secured credit cards.

Here’s a quick overview of how these types of credit cards compare across 4 key aspects:

Qualifications

• Secured credit cards primarily rely on your security deposit to qualify
• Unsecured credit cards typically rely on credit and income to qualify

APRs

• Secured credit cards may have higher APRs than unsecured credit cards

Credit limits

• Unsecured credit cards may offer higher credit limits, particularly for those with excellent credit
• Secured credit cards typically tie your credit limit to your deposit, which may be just a couple of hundred dollars

Rewards

• Some secured credit cards may offer some rewards, but it’s not a given
• Rewards tend to be more common among unsecured credit cards, with many options to tailor those rewards to your spending habits

Still, at a high level, secured and unsecured credit cards work in similar ways. For both types of cards, the card issuer establishes a credit limit. The cardholder has a minimum payment due date each month and must abide by the other cardholder agreement terms. Both secured and unsecured credit cards may charge interest on outstanding balances. 

How much is the deposit for a secured credit card?

Depending on the issuer, your deposit may need to meet minimum requirements (such as a $200 minimum) or be within a defined range to qualify. The security deposit may be equal to the credit limit, which may help you pick your desired amount. For example, an approved applicant who deposits $500 may have a $500 credit limit on the card.

How can a secured credit card help rebuild my credit history?

If your secured credit card issuer reports your account activity to the 3 major credit bureaus, you can start building credit. For example, regular, on-time payments are important to building good credit and may help demonstrate to future lenders that you're a responsible borrower. A secured credit card may help you start that process.

When you consider a secured credit card, check that the card issuer reports your activity to the credit bureaus. This way, responsible card usage can improve your credit score over time.

Secured credit cards vs. unsecured credit cards: Which should you choose?

If you're looking to build or rebuild your credit, a secured credit card can be an accessible tool to help you achieve that while also offering some of the same benefits as an unsecured credit card.

If you think your credit is strong enough to qualify, it may make sense to apply for an unsecured card. Unsecured credit cards may come with other benefits, such as the opportunity to earn cash back or miles.

Before applying for a secured or unsecured credit card, carefully consider the card’s terms and conditions and be sure that the card aligns with your spending habits and goals.

Frequently asked questions

Is it better to have a secured credit card or an unsecured one?

It depends on your situation. Secured credit cards are a good option to build credit, while unsecured cards may offer better perks. Both, however, may require you to pay interest and make monthly payments.

Do you ever get your money back from a secured credit card?

As long as you keep your account in good standing and pay off your balances, you may be able to get your deposit back on a secured credit card.

How long does it take for a secured credit card to become unsecured?

Many secured card issuers let cardholders graduate to an unsecured card after 6 to 12 months of responsible use. Otherwise, you may need to apply separately for an unsecured credit card. In that case, it can take up to 6 months to start building credit, and it may take many more months to attain a good credit score. You can check your credit reports for free each year, and the credit bureaus may offer free weekly reports. Those may help you monitor your credit and understand when you may be able to qualify for an unsecured credit card.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.