Most credit cards are unsecured. Unlike secured cards, unsecured cards don't require a security deposit.
While the credit limit for a secured card is usually equal to your security deposit, the lender typically determines the credit limit for an unsecured card based on factors like your creditworthiness and debt-to-income ratio.
Read on to learn more about how unsecured cards work, the pros and cons and how they differ from secured cards.
How do unsecured credit cards work?
An unsecured credit card is a revolving line of credit. You can spend up to a certain amount, known as your credit limit. At the end of your billing cycle, your card issuer tallies up the full amount due – this is your statement balance. You can pay the entire balance, the minimum or any amount in between.
If you miss your due date or pay less than the minimum amount due, your payment is considered late, and you may incur late fees and interest charges. If you pay less than the full balance, you’ll carry the remaining amount forward to the next month, and may be charged interest.
Types of unsecured credit cards
There are many different types of unsecured credit cards. Let’s take a look at some popular options. Note that there may be secured versions of some of these types, such as cash back or travel cards.
Cash back credit cards: These credit cards allow you to earn cash back on qualifying purchases.
Rewards credit cards: Rewards cards let you earn points on qualifying purchases that can be redeemed for rewards.
Travel credit cards: A travel credit card can help you earn miles or points on qualifying purchases that you may be able to redeem for travel expenses, like hotels and flights.
Low intro APR cards: These cards can offer a low intro APR on balance transfers, purchases or both.
Secured vs. unsecured credit cards
Secured credit cards are designed for people trying to build or repair their credit, and they tend to have less stringent creditworthiness requirements than unsecured cards.
Secured credit cards require a security deposit. The deposit amount is typically equal to the credit limit. If you can’t make payments, the lender can use the deposit to pay your balance.
Secured credit cards typically don’t have rewards programs, while unsecured cards may. Your credit limit will generally be on the lower end for a secured card (often equal to your security deposit). Credit limits for unsecured credit cards can vary, and may also depend on the card, your creditworthiness and other financial factors.
Applying for an unsecured credit card
Most unsecured credit card applications ask for basic information, such as your:
- Legal name
- Date of birth
- Social Security number or Individual Taxpayer Identification Number
- Amount and source of income
- Employment status
- Address and contact information
- Monthly housing or rent payment
Card issuers may use this information alongside your credit history to determine whether you’re approved.
Benefits and drawbacks of unsecured credit cards
Not having to tie up funds with a security deposit can be a major benefit of an unsecured credit card. That said, you may need stronger creditworthiness to be approved for an unsecured credit card. Many unsecured cards offer rewards programs that let you earn miles, cash back or points on qualifying purchases.
Before moving forward with an application, you might want to consider whether an unsecured credit card could tempt you to spend beyond your means. If you can’t make at least the minimum monthly payment, you could face late fees, interest charges and possible credit damage.
By using your unsecured credit card responsibly and making timely payments, you may see your creditworthiness improve over time.
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.
