Secured vs. Unsecured Credit Card: What’s the Difference?

Secured vs. unsecured credit card

What is a secured credit card?

A secured credit card is a type of credit card that’s backed by a cash “security” deposit, which acts as collateral for the card to reduce the lender’s risk. Typically the deposit is $200, but it might be higher or lower depending on the type of card. Credit limits are also usually lower than unsecured cards. 

If you default on your monthly payments, the lender will then keep the deposit. Or, if you upgrade to an unsecured card or pay off your balance in full and close your account, the deposit is refundable. 

Secured credit cards are primarily used to help cardholders establish and/or build their credit and credit score through on-time payments and keeping a low balance. 

How do secured credit cards work?

After you make your minimum security deposit, you can use the secured credit card just as you would any other credit card, spending up to your credit limit and paying it off in full each month. 

The credit limit is typically equivalent to your security deposit, and while $200 is common, the maximum amount can be up to $2,500 (depending on the card). For example, if you put down a $300 deposit, your credit limit will be $300. Other cards, such as the Capital One Platinum Secured Credit Card, may offer higher credit limits after you make a certain number of payments on time. 

If you carry a balance from month to month, you will accrue interest on the balance.

Keep in mind that actions taken with a secured credit card are reported to the three main credit bureaus (Experian, Equifax, and TransUnion) so payment history and keeping a low credit utilization ratio can help improve your score. 

Some cards may then let you upgrade to an unsecured card directly from your account, while others require you to apply for an unsecured card elsewhere and then close your secured card.

Pros and cons of a secured credit card

What is an unsecured credit card?

Unsecured credit cards are likely what you think of when you think of a traditional credit card. These cards are unsecured because they are not backed by collateral and they don’t require a security deposit. They are more common than secured cards and are available to cardholders with a wider range of credit scores (from average to excellent). 

Unsecured cards also have larger lines of credit. You may also be able to do a balance transfer, which is transferring the balance of other cards onto your unsecured card. 

Additionally, unsecured cards often offer rewards programs so you can earn points, miles, or cash back on your spending. 

How do unsecured credit cards work?

APR, lending terms, and credit limit are based on your credit score and history. 

When you apply for an unsecured credit card, the issuer will grant you a line of credit based on your creditworthiness, or ability to pay the money back. You are expected to make a minimum payment each month by the due date, though paying off the balance in full each month will prevent accrued interest. 

Because the lack of collateral makes these credit cards riskier to a lender, you likely need a higher score or better credit history to be granted more favorable terms. 

You can also improve your credit with an unsecured card by paying off the balance in full and on time each month and keeping your overall credit utilization low. 

Pros and cons of unsecured credit cards

Pros	Cons
No collateral is required.	Need a good credit score to qualify.
Higher credit limits.	Card terms depend on creditworthiness.
Perks and rewards (cash back, points/miles).	A higher credit limit could lead to spending more than you can afford.
Lower APRs.
Wider choice of card options.

Building credit with a secured vs. unsecured credit card

Secured and unsecured credit cards are very similar: The primary differences are that a minimum security deposit is required for a secured card, and the credit limit for secured cards is lower. Both types of cards can be used to make both online and in-store purchases, and both charge interest if you carry a balance from month to month (though you are only required to make the minimum payment).

Both report activity to the three credit bureaus, so both can also positively and negatively impact your credit score in the same way depending on how responsibly you use it. For example, 

• Making on-time payments can improve your payment history, which makes up 35% of your score. Missed or late payments can damage your payment history. 

• Keeping a high credit utilization ratio (30% or more) can damage your score while keeping a lower utilization ratio can help your score. 

How to choose between a secured and unsecured card

There are two things you need to look at when choosing between a secured and unsecured card – your credit score/history, and the features of the card. In most cases, you’ll probably find an unsecured card is a better option if you’re able to qualify for one. 

1. Check your credit score and history

Ultimately, if you have a low credit score or poor/no credit history, a secured card may not only be your best option, but it might also be your only one. Unsecured credit cards work best for cardholders with a credit score of 670 or above, while secured cards are available for scores as low as 570 or lower. 

Secured cards can also be a great way to build your credit history.

2. Compare the features

Not all cards are the same, so compare things like:

• Interest rate/APR
• Rewards program (like points, miles, or cash back)
• Annual fee
• Other fees
• Cardholder perks

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