Secured vs. Unsecured Credit Card: Which is Right for You?

The credit card market in the United States is vast.

During your search for a suitable credit card, you’ll find offers for both secured and unsecured credit cards, but what are the main differences and which is right for you?

What is Secured Credit?

A secured credit means adding funds to a security deposit account.

The funds act as collateral for the payments that you make and it gives the credit card issuer an assurance that the funds are available. You’ll put a set amount of money into the secured deposit – usually $200 upwards. However, some secured credit cards accept a deposit of as little as $49.  If you miss a payment, your credit card company will use the funds available in the security deposit to cover it.

Secured credit cards are sometimes used to establish a credit history, and it might be suitable for those with a poor credit record. However, as with unsecured credit cards, you’ll have to apply for one, and there’s no guarantee of acceptance.

Unsecured Credit Cards Explained

These are usually given to customers with good credit history and a high credit score.

When you apply for an unsecured credit card, the card issuer will use your financial history and the other details you provide to determine your suitability; it will decline or approve your application based on this. Unlike secured credit cards, there is no need to put up collateral.

Depending on the credit card you choose, you can also qualify for rewards and a small amount of cashback on your purchases. In addition, if you make a purchase via credit card and the goods don’t arrive or not as described, then under certain circumstances, you can get the money refunded.

If you have a poor credit history, you could apply for a bad credit card, or a credit builder card that is also available on a unsecured basis, however, interest rates are high and can be up to 70 percent.

Is a Secured Credit Card Right for You?

A secured credit card might be suitable for you if:

  • It’s your first credit card and you want to build up a good credit record by making regular payments every month and always paying on time. It’s also something to consider if you have a poor credit rating and want to rebuild your record.
  • You want the chance to earn some interest on the money set aside in your security deposit.
  • You want to move on to an unsecured card once you have established a good credit record.
  • You want to control your spending, then a secured credit card will limit you to the money in your account.

Downsides of Secured Credit

Although secured credit cards do have their advantages, there are some negatives to think about. The first is late payment and annual fees, although annual/late payment fees don’t apply to all secured cards. Moreover:

  • Fees can vary quite a bit between card issuers, however, there are plenty of free comparison sites to help you find the best deals.
  • Another negative is the higher interest rates, which vary from company to company.
  • The terms are usually stricter than with unsecured credit cards; always look at the small print before committing.
  • If you like to accumulate rewards, you’ll find the majority of secured credit cards don’t offer them.

Is an Unsecured Credit Card Suitable for You?

An unsecured credit card might not be suitable for you if:

  • You can’t manage money properly, and you are inclined to give into the temptation to spend.
  • You only intend to cover the minimum payment every month. The balance – and the interest rates – are going to steadily accrue. If you don’t handle money well, it is easy to let a large debt accrue, which can result in a debt you cannot comfortably manage.

Downsides of Unsecured Credit

Although an unsecured credit card can give you financial freedom, there are some negatives associated with them. Here are some of the main ones:

  • Although you can get credit cards that offer 0 per cent credit for several months, the interest rates charged vary considerably from company to company, so always do your research to find the best deal, and look around for the best offers.
  • If you don’t keep up with credit card payments, you risk damaging your credit rating. An individual’s payment history can make up 35 per cent of their credit rating, so falling behind could have a significant impact on your ability to obtain credit in the future.

Choosing a Credit Card

When choosing a credit card, never sign up to the first one you find: narrow it down to a choice of 3-4 and compare interest rates, terms etc. In addition:

  • Always be clear on the terms. For instance, with a secured credit card, how long will it take before you can qualify for an unsecured credit card? And how long will you be committing to the credit card company for? This is an important point to consider, especially if you like to change between credit card companies to get the best rates
  • Ask about the main problems you need to be aware of when taking out a secured credit card.
  • Shop around for a secured credit card that will offer you the best interest rates.
  • Look at the annual fees, and don’t overlook the APR.
  • For the best deal, compare rewards, cashback, sign up bonuses and introductory rates too.


Finding the right credit card for you can be a complex process. In addition to getting the best deals and reading the terms, you also need to find the card that is right for your personal circumstances, and for your attitude towards money.

Both secured credit and unsecured credit offer their pros and cons, and by gaining a better understanding of these, and learning more about their suitability for your circumstances, you can make a clearer decision over which card is right for you.