Secured Credit Cards vs Unsecured Credit Cards

Credit cards can be either secured or unsecured. With responsible use, a secured card may be a good choice if you are looking to establish a credit history and 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 difference between secured and unsecured credit cards.

1. What is a secured credit card?

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

If the cardholder demonstrates responsible credit usage by making timely payments and otherwise abiding by the cardholder agreement, it can help them build a positive credit history and improve their 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

2. What is an unsecured 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. 

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

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

The core difference is the cash deposit that secured credit cards require.

Otherwise, secured and unsecured credit cards work in similar ways. For both types of cards, the card issuer establishes a credit limit  and the cardholder has a minimum payment due date each month and must abide by the other cardholder agreement terms.

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

The security deposit is typically an amount the applicant selects and, depending on the issuer, that amount may need to meet minimum requirements or be within a defined range. The selected amount typically determines the credit limit. For example, an approved applicant who deposits $500 will have a  $500 credit limit on the card.

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

Regular, on-time payments are important to building good credit. A  secured credit cardholder who establishes a pattern of making regular, on-time payments can help build or rebuild their credit.

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

When you consider a secured credit card, check that the card issuer reports your activity to the three major credit bureaus. This way, responsible card usage should show up when lenders pull your credit report, regardless of which credit bureau they use to pull the report.

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

If you're looking to build or rebuild your credit score, a secured credit card can be a great 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 more frequently come with other benefits, like opportunities to earn rewards such as cash back or miles.

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.

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