When searching for a credit card, you’ll come to find that you have two general options:

• Secured credit card
• Unsecured credit card

While these are similar in many ways, there are also several differences that you need to familiarize yourself with.

What’s the Difference Between Secured and Unsecured Credit Cards?

When most people think about credit cards, it’s the unsecured variety that comes to mind. You apply for a card, receive it by mail, and use it to make purchases up to your credit limit.

But with a secured credit card, there’s one major difference: a deposit is required to open your account.

For example, you may have a $500 security deposit for the card you’ve selected. This acts as collateral, as well as your credit limit.

If you default on your account, your issuer will keep the security deposit. 

Another thing to keep in mind is that a secured card is typically easier to obtain. And once again, that’s because of the security deposit. This allows the issuer to do business with you, without any risk.

Which Credit Card is Best?

If you have good or excellent credit, you don’t have much to worry about in regards to finding a credit card. There’s a good chance you’ll find an offer that you qualify for.

But if you have bad credit and/or no credit, most financial institutions won’t want to issue you an unsecured credit card. They consider you to be too big of a risk.

So, if you don’t qualify for an unsecured card, your next best option is a secured card.

Tip: you don’t have to keep your secured credit card for the rest of your life. Use it as a tool for improving your credit score and establishing a positive history. As your score increases, you can think about beginning your search for an unsecured credit card.

Tips for Using Both Secured vs. Unsecured Credit Cards

Regardless of if you have a secured or unsecured credit card, there are some tips you can follow to ensure that you use it in a responsible manner:

• Don’t buy anything that you can’t afford to pay for when your bill comes due
• Pay your bill in full each month to avoid interest charges
• Never make a late payment, as this will drag down your credit score
• Keep your credit use as low as possible

Along with the above, regularly check your credit score and credit report to ensure that your activity is being reported and that your score is trending in the right direction.

Final Thoughts

There are benefits of both secured and unsecured credit cards, so keep an open mind as you search for the offer that best suits your financial circumstances and goals.

Once you find an offer that piques your interest, review the application and decide if now’s the best time to proceed.

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