Connect with us

Secured Credit Cards

Secured Vs Unsecured Credit Cards: What’s the Difference?

mm

Updated

 on

For the most part, paying for things in developed countries such as the United States is primarily done via credit cards. However, this puts a lot of people in a difficult situation because they cannot get a credit card if their credit score is not good enough. The system was developed to protect the companies from allowing people to pay with the money that they won’t be able to pay back, and so it is really difficult, if not impossible, to find a card issuer who will approve your application for a credit card if your credit score is 579 or lower.

Fortunately, there is a way around it, as you can simply apply for a secured credit card, which is available for pretty much everyone. Not only that, but they can also help you improve your credit score and eventually switch to an unsecured credit card.

If you are unfamiliar with the concept of secured and unsecured credit cards, stick around, as we are about to explain everything that you need to know about them.

What are secured credit cards?

To put it simply, a secured credit card is a type of credit card that you can get even with a low credit score. However, there is a catch — in order to get it, you will have to make a cash deposit as collateral. The amount that you deposit is usually close to the amount of the line of credit that you will get. So, if you deposit $1,000 as collateral, you will likely receive a line of credit that is around $1,000.

You might think that this sounds a lot like using a simple debit card, for which your credit score doesn’t even matter, and you would be correct. The principle is indeed similar. With debit cards, you load them with cash which you can then spend. With secured credit cards, you pay a deposit and can then spend the amount that you paid. So, why even go through all the trouble involving secured credit cards?

The reason is simple. When you use secured credit cards, your card issuer monitors your activity and reports it to three credit bureaus. If you use the card responsibly, this will be reported to the bureaus, and your credit score will improve enough so you can get a proper, unsecured credit card.

Secured vs unsecured credit card: What’s the difference?

Both secured and unsecured credit cards can be used everywhere for paying for goods and services. However, generally speaking, unsecured cards offer a better deal to consumers. You see, with unsecured cards, you don’t have to deposit some money first. Instead, you get a line of credit, and you can spend until you reach it, and then pay that money later on. With secured credit cards, it’s the other way around.

Furthermore, unsecured cards also have better perks and even some rewards. For example, you get lower fees and/or lower interest rates. Your average PR for unsecured credit cards is over 16%, but for secured cards, it is significantly higher. Unsecured cards might have annual fees, but not necessarily. Meanwhile, secured credit cards rarely come with rewards, while unsecured ones usually have plenty of rewards for the user.

How to apply for a secured credit card?

If you have decided to apply for a secured credit card, you have just made the first great step towards improving your credit score. The process of applying is the same as the process for getting an unsecured card. You start by comparing secured cards offered by different providers and find the one that comes with the most beneficial deal, and then you follow through with your application.

You will have to provide certain information, such as your name, address, birth date, Social Security number, and employment information, including income. Usually, you will also have to make that initial deposit when you apply, and you can typically do it online if you have a debit card or a bank account. In a rare situation where your application for the secured credit card gets rejected, the money will be returned to you, which typically lasts a few business days.

How to upgrade to an unsecured card?

Assuming that you had your secured card for a while and you did everything right, your credit score might be good enough for you to apply for an upgrade and get an unsecured card instead. Estimates say that this usually takes 12 to 18 months of careful usage of the secured card, but it really depends on your score and how good or bad is it. The minimum credit score to qualify for an unsecured card is 670 or higher.

But, once your credit score is in order, you can either ask your card issuer to transfer your secured line of credit to an unsecured card, or you can try applying for a brand new credit card, and close the secured card once you get the unsecured one. Also, note that, when you close your secured credit card, you will get your initial deposit back.

Usually, it is both faster and easier to simply apply for a new card, rather than to upgrade the secured card. Not to mention that it is better, because you will be able to choose the right card which offers the most rewards.

Secured vs unsecured credit card: Building a credit score

As mentioned earlier, a secured credit card allows you to build up your credit score, which allows you to eventually qualify for an unsecured card. However, one thing that is important to note is that unsecured credit cards also help you improve your score even further.

The process is pretty much the same for both cards, as they both report your movements to the three credit bureaus — TransUnion, Experian, and Equifax. They will collect data regarding your balances, purchases, and payments in order to build up a history of credit usage-

Which are the best secured credit cards in 2022?

After you decide to get a secured credit card, you will first have to look up the top offers and compare them in order to see what they offer. Essentially, you are looking or the lowest fees and the best benefits. So, for example, you can look into the following offers.

1) Discover It Secured credit card

The first one is Discover It Secured Credit Card, which is one of the handfuls of credit cards that let you earn rewards while not having an annual fee. The card allows you to get 2% cash back at restaurants and gas stations and an unlimited 1% cash back when it comes to everything else. Your line of credit can be any amount between $200 and $2,500, depending on how much you pay for your first deposit. And, at the end of your first year of using it, Discover matches all of the cashback that you have earned. Finally, you also become eligible to receive free FICO credit score access, which is quite useful for monitoring the changes.

2) Capital One Quicksilver secured credit card

Moving on, we have the Capital One Quicksilver Secured Cash Rewards Credit Card. This card is best suited for those who want to earn a flat rate of rewards for every purchase. It offers 1.5% cash back on purchases, which is a fair rate for secured and unsecured credit cards alike. Plus, if you are a frequent traveler, you will love its special perk — unlimited 5% cash back on hotels and rental cars that you book using Capital One Travel. This card also has no annual fee, and its minimum deposit is only $200. And, like the others, it will improve your credit score.

3) Capital One Platinum Secured Credit Card

Finally, we have Capital One Platinum Secured Credit Card, which allows you to secure a line of credit with $49, $99, or $200 refundable deposit. This makes it a great option for users who do not have a lot of money and are prevented from making major deposits. However, the company will be keeping an eye on your account, and in only 6 months, it will check to see if you can be automatically considered for a higher credit line. Unfortunately, this card doesn’t have rewards, but it also doesn’t feature an annual fee, and you can still boost your credit score with it.

Conclusion

Modern society is gravitating away from cash payments and towards cards, including debit and credit cards alike. Obviously, credit cards come with plenty of advantages, but getting them requires a good credit score, which can be hard to achieve. If you find yourself in such a situation, then consider getting a secured credit card, and you can check out the best offers on this page. They can improve your credit score, allow you to get an unsecured card eventually, and some even have quite decent benefits, so check them out and make your choice.

Ali is a freelance writer covering the cryptocurrency markets and the blockchain industry. He has 8 years of experience writing about cryptocurrencies, technology, and trading. His work can be found in various high-profile investment sites including CCN, Capital.com, Bitcoinist, and NewsBTC.

Advertiser Disclosure: Securities.io is committed to rigorous editorial standards to provide our readers with accurate reviews and ratings. We may receive compensation when you click on links to products we reviewed.

ESMA: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Investment advice disclaimer: The information contained on this website is provided for educational purposes, and does not constitute investment advice.

Trading Risk Disclaimer: There is a very high degree of risk involved in trading securities. Trading in any type of financial product including forex, CFDs, stocks, and cryptocurrencies.

This risk is higher with Cryptocurrencies due to markets being decentralized and non-regulated. You should be aware that you may lose a significant portion of your portfolio.

Securities.io is not a registered broker, analyst, or investment advisor.