Secured vs. Unsecured Credit Cards: Which is the Best Option for You?

Find out which is better, Secured vs. Unsecured Credit Cards

If you’re considering applying for a credit card, you’ve probably come across two main types: secured credit cards and unsecured credit cards. While both allow you to buy now and pay later, the difference between them can impact your user experience and financial history.

In this post, we’ll explore what makes these two types of cards different, the pros and cons of each, and how to choose the best one for your needs. Let’s get started!

What are secured credit cards?

Let’s start with the secured credit card. The name “secured” comes from an important feature: it requires you to deposit a sum of money as a “guarantee” or “security deposit” before you can start using the card.

This amount acts as a reserve for the bank in case you can’t pay your bill. In other words, it’s a way for the bank to protect itself against the risk of default.

Normally, the credit limit of your secured card will be equal to the amount of your deposit. If you deposit $500, for example, your card limit will be $500. However, some financial institutions may allow higher limits, depending on your initial deposit.

What are unsecured credit cards?

On the other hand, unsecured credit cards don’t require any initial deposit. Instead, credit limits are based on your credit score, financial history and ability to pay. For people with a good credit score, this type of card can have much higher limits than a secured card.

In addition, unsecured cards offer more flexibility, since you don’t have to put money down as a deposit. However, if you don’t have a good credit history or a high credit score, your chances of getting an unsecured card may be lower.

Advantages and disadvantages of secured cards

For those who are starting to build up a credit history or have had problems in the past, secured cards offer an easy gateway.

In addition, responsible use of a secured card can help you improve your credit score. Paying your bill on time shows creditors that you can be trusted.

Because you make a security deposit, the risk to the bank is reduced, and this means that even if your credit score is low, you can still be approved.

As for the disadvantages, you need to have the money available to make the initial deposit. This amount is “stuck” on the card and cannot be used for other expenses until you pay off your debt or cancel the card.

In addition, it’s worth noting that your credit limit will generally be restricted to the amount of your deposit.

Advantages and disadvantages of unsecured cards

Just like any other financial service, there are some pros and cons that you need to be aware of. To get you up to speed, we’ve put together a list of the advantages and disadvantages. Check them out below!

Advantages:

• No initial deposit: the biggest advantage is that you don’t need an initial deposit to start using the card;
• Higher credit limit: if you have a good credit history, you can get a higher credit limit with an unsecured card;
• More benefits: many unsecured cards offer extra benefits, such as rewards programs, cashback and insurance.

Disadvantages:

• Higher credit requirements: to be approved for an unsecured card, you need a considerable credit score. If your score isn’t good, it can be more difficult to get this type of card;
• Higher fees and interest: if your credit isn’t great, unsecured cards may have higher interest rates.

Which is the best option for you?

The choice between a secured and unsecured card depends on where you are in your financial journey.

If you are starting to build your credit or want to improve your score quickly, a secured card may be the best option. It’s more affordable and an effective way to show lenders that you can manage credit responsibly.

If you already have a stronger credit history and want more flexibility and extra benefits, an unsecured card may be the way to go. However, bear in mind that approval will depend on your credit score.

Conclusion

Both secured and unsecured cards have their place in the market. Secured cards are ideal for those who need to build or repair their credit, while unsecured cards offer more advantages and flexibility for those who already have a solid credit score.

Assess your financial situation and credit objectives before making your decision. The most important thing is to use either card responsibly, paying your bills on time to maintain your financial health. Now that you understand the differences, it’s easier to decide which credit card to get.

Escrito por

Juliana Raquel