You likely already know what a credit card is, but what’s an unsecured credit card?
The answer is quite simple: Unsecured credit cards don’t require a security deposit (an upfront sum that may be refundable). Instead, they rely on creditworthiness to help determine if you qualify. Most credit cards are unsecured.
Let’s dig deeper into how unsecured credit cards work, their pros and cons, how they compare to secured cards and what you need to do to apply for an unsecured card.
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 calculates a minimum amount due based on your account activity and sends you a monthly statement. You can pay your entire statement balance, the minimum amount due or any amount in between.
If you pay your statement balance by the due date, you can generally avoid paying interest on those charges. That’s because most credit cards offer a grace period, which typically goes from end of your billing cycle to your payment due date (approximately 30 days).
If you miss your due date or pay less than the minimum amount due, your payment is considered late. In that case, 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, including:
- Cash back credit cards: These credit cards allow you to earn cash back on qualifying purchases. Often, this is a percentage of your charges, such as 2% back on all purchases, or 5% cash back on gas.
- Rewards credit cards: Rewards cards let you earn points on qualifying purchases that can be redeemed for rewards, which vary by issuer.
- 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 and related perks, like hotel stays and flights.
- Low intro APR cards: These cards can offer a low intro APR on balance transfers, purchases or both, which can help people looking to save on interest while getting out of debt
Note that there may be secured versions of some of these types of unsecured credit cards, such as cash back cards.
Secured credit cards vs. unsecured credit cards
There are a few important differences between secured and unsecured credit cards:
| |
Secured Credit Cards |
Unsecured credit cards |
| Who they're designed for |
People trying to build or repair their credit |
People with some established credit |
| Security deposit |
Yes |
No |
| Credit requirements |
Typically less strict |
Can have stringent credit requirements |
| Rewards |
May offer limited rewards, though they may not be as appealing as some offered by unsecured cards |
Wide array of reward and cash back options |
| Credit Limits |
Typically on the lower end
|
Can be higher (though this varies by issuer and creditworthiness) |
Benefits and drawbacks of unsecured credit cards
Pros
- No need for a security deposit
- Can help you build credit over time
Cons
- Typically requires stronger credit to qualify
- Paying less than the minimum can result in late fees, interest charges and credit score damage
How to apply for an unsecured credit card
If you’re interested in an unsecured credit card, the first step is typically to check your credit. Issuers may consider factors like your credit score and debt-to-income ratio (the percentage of your gross monthly income that goes toward debt payments). Knowing where you stand may help you narrow down your options.
Once you choose an unsecured credit card, you can gather your information and apply. The application process is often straightforward and typically can be completed entirely online. Most unsecured credit card applications ask for your:
- Legal name
- Date of birth
- Social Security number or individual taxpayer identification number
- Amount and source(s) 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. You’ll often receive a decision within minutes, but it can take longer if the issuer needs more information.
If approved, you should receive your credit card in the mail within the next couple of weeks, but many issuers provide virtual credit card numbers that can let you use that credit right away. That way, you can start taking advantage of the perks that can come with your 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.
