Secured Credit Card vs Unsecured: What Are the Differences?

There are around 506 million card accounts. This number grows larger every year as more people realize the benefits of having one. 

If you’re choosing to begin establishing credit, you may be looking at different types of credit cards to see what is best for you. There are different types of credit cards such as unsecured credit cards or secured credit cards.

However, you may not know the difference between a secured credit card vs unsecured.

Read our guide below to learn the differences between these two, and how they will help improve your credit score.

What Are the Key Differences Between a Secured Credit Card vs Unsecured?

There are a few key differences between a secured credit card and an unsecured credit card. Though both types of cards report to credit bureaus and can help you build credit, there are major differences between the two.

Secured Credit Cards

A secured credit card is a credit card that is backed by a deposit you make with the card issuer. For example, if you aim for a $200 credit limit, you may need to deposit $200 with the card issuer to get the card.

Secured credit cards can help people build or rebuild their credit history because they report your payments to the credit bureaus. If you make your payments on time and keep your balances low, you can improve your credit score.

Unsecured Credit Cards

An unsecured credit card is a type of credit card that is not backed by any collateral. This means that if you default on your payments, the credit card issuer will not be able to seize any of your assets.

However, this also means that unsecured credit cards tend to have higher interest rates than secured credit cards. If you are considering getting an unsecured credit card, make sure that you will be able to make your payments on time and in full, as defaulting on your payments will damage your credit score.

Weighing Between Secured Credit Card vs Unsecured Credit Card

Both types of credit cards allow you to borrow money up to a certain limit to purchase items or withdraw cash. Both types of credit cards also have yearly fees, interest rates, and other charges associated with them. The main difference between the two is that a secured credit card requires a deposit while an unsecured credit card does not.

Yearly Fees

There are many similarities between secured and unsecured credit cards, but one key difference is the type of yearly fee each card charges. A secured credit card typically has an annual fee that is much lower than an unsecured credit card’s fee.

For example, a typical unsecured credit card might have an annual fee of $50, while a secured credit card’s annual fee might be only $25. This is because the issuer of a secured credit card is taking on less risk than the issuer of an unsecured credit card.

Interest Rates

When it comes to choosing between a secured and unsecured credit card, one of the main things to consider is the interest rate. A secured credit card is typically going to have a lower interest rate than an unsecured credit card.

This is because the collateral (usually a savings account) that secures the card reduces the risk for the lender. If you are someone who carries a balance on your credit card from month to month, a lower interest rate can save you a significant amount of money in the long run.

Other Charges

When it comes to other charges between these accounts, there is no clear winner between a secured credit card and an unsecured credit card. Both types of cards can come with a variety of other charges, including annual fees, late payment fees, and over-the-limit fees.

However, which type of card is more likely to come with these other charges varies depending on the card issuer. Some issuers may charge annual fees for both types of cards, while others may only charge annual fees for unsecured cards.

Late payment and over-the-limit fees also tend to be more common on unsecured cards. So, if you’re looking to avoid these types of fees, you may want to consider a secured credit card.

Building Your Credit Score Between Secured Credit Card vs Unsecured Credit Card

Both secured and unsecured credit cards can help build your credit score. However, unsecured credit cards generally have higher credit limits and lower interest rates than secured credit cards. As such, they can be a better option for building your credit score. 

If you are considering a secured credit card, be sure to shop around and compare offers. You want to find a card with a low-interest rate and a reasonable credit limit.

Also, be sure to make all of your payments on time and in full. Doing so will help you build a positive credit history and improve your credit score.

How Credit Cards Help Build a Credit Score?

Credit cards help build a credit score in several ways. When you use a credit card, the lender reports your activity to the credit bureaus. This activity includes your credit limit, balance, and payment history.

Credit cards also help you build a good payment history, which is one of the most important factors in your credit score. Having a credit card can help you in an emergency, by providing you with a source of funds if you need them. Using a credit card responsibly can help you improve your credit score over time.

Learn About How Secured Credit Card vs Unsecured Differ

A secured credit card is a great option for people with bad credit because it requires a deposit that secures the credit line. An unsecured credit card does not require a deposit but often has higher interest rates and fees. 

As a result, unsecured credit cards usually have higher interest rates and fees than secured credit cards. It’s important to learn about the differences between secured credit card vs unsecured cards before you decide which one is right for you.

If you want to read more informative articles, visit our blog section.

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