Secured Credit Cards vs Unsecured Credit Cards

When it comes to choosing a credit card, one of the primary choices you'll make is deciding between a secured card and an unsecured card. Both cards have advantages and disadvantages in different situations and to know the right choice, you’ll need a comparison of secured credit cards vs. unsecured credit cards.

For instance, if you want to build your credit, applying for a secured credit card may help. With responsible use, a secured credit card may help you establish a stronger credit history and build your reputation as a borrower who may be a suitable candidate for other types of loans.

An unsecured credit card may make more sense if you already have good credit and want to take advantage of a higher credit limit or more credit card rewards.

However, these aren’t the only two situations where secured credit cards and unsecured cards can differ. Let’s learn more about the difference between secured credit cards and unsecured credit cards.

1. What is a secured credit card?

A bank that offers a secured credit card requires the applicant to make a cash deposit before it will open the credit card account. This cash deposit works as collateral. If the cardholder uses the credit card but doesn't make the payments as promised, then the card issuer can keep the cash deposit.

But if the cardholder makes payments as promised and otherwise abides by the cardholder agreement, then the card issuer typically reports those timely payments to the credit bureaus. That's how people with new or poor credit histories can use a secured credit card to try to rebuild their credit. 

Getting a secured credit card may be a smart and strategic choice for those who want to rebuild their credit following a financial difficulty, such as a bankruptcy or foreclosure. But because secured credit cards may also help borrowers with limited credit histories, they may also be suitable for recent college graduates, new citizens, and others who have never been approved for a loan. Read How to Help Build Credit and 4 Steps To Help Build Credit With No Credit History for more information.

2. What is an unsecured credit card?

An unsecured credit card doesn’t require a deposit, unlike a secured credit card. For this reason, credit card issuers are more selective during the application process and they may require higher credit scores for approval of unsecured credit cards. That's because card issuers prefer applicants who have established a credit history of repaying debts on time.

3. What is the difference between secured and unsecured credit cards?

The core difference between a secured credit card vs an unsecured credit card is the cash deposit that secured credit cards require.

Otherwise, secured and unsecured credit cards work in similar ways. For both unsecured credit cards and secured credit cards, the card issuer establishes a credit limit  and the cardholder should make regular, on-time payments and abide by the other cardholder agreement terms.

Individual cardholder terms vary widely between all types of credit cards, whether they use secured or unsecured credit cards. Two cardholders may qualify for slightly different terms even while holding the same credit card from the same issuer, based on multiple factors including their credit scores. For example, different cardholders often pay different interest rates, and some cardholders have higher credit limits than others.

4. How much is the deposit for a secured credit card?

How much of a deposit is required depends on a wide variety of factors, but banks that offer secured credit cards can require collateral ranging from $300 to $5,000. In many cases, the size of the deposit is equal to the size of the credit limit. That means an applicant who is granted a $500 secured credit card limit may need to give the credit card issuer $500 in cash, up front, as collateral.

If the secured cardholder abides by the terms of the cardholder agreement and establishes a responsible borrowing history, the card issuer might offer the cardholder the opportunity to upgrade to an unsecured credit card. Upon upgrade, the card issuer would likely return the security deposit to the cardholder.  

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

Regular, on-time payments play an important role in helping build a good credit score.  A  secured credit cardholder who establishes a pattern of making regular, on-time payments can help build or rebuild – credit history.

Once you’ve obtained the card and started making regular, timely payments, you may start to see that a secured card can help improve your creditworthiness over time, and demonstrate to future lenders that you are a responsible borrower.

Other factors also play a part in building credit, so make sure you understand how credit works before applying. Read How To Start Building Credit When You Have No Credit History for more information.

Finally, as you consider a secured credit card, make sure that the card issuer reports your activity to the credit bureaus. Card issuers that report to credit bureaus give you the best opportunity to establish or rebuild your credit history.

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

Choosing a secured vs. unsecured credit card depends on what you plan on using your credit card for primarily.

For people looking to build or rebuild their credit score, a secured credit card is a great tool to help you achieve that while also offering many of the same benefits as an unsecured credit card.

Additionally, if you use a secured credit card responsibly, you may have a chance to upgrade to an unsecured card with a higher credit limit in the future. If the total amount of credit you use remains low, this could improve your credit utilization rate, which can help build your credit even further.

For applicants who already have a strong credit history, an unsecured credit card has the advantage of not needing an initial deposit, as well as greater variety in rewards and perks.

Another plus for unsecured credit cards is that they will typically have a lower interest rate than a secured card, though this can vary depending on your creditworthiness and what card you choose.

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

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.

Additional Resources

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Learn how FICO® Scores are determined, why they matter and more.

Review financial terms & definitions to help you better understand credit & finances.