Secured vs. Unsecured Credit Cards: What’s the Difference?
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If you have good to excellent credit, chances are you’ll be able to qualify for an unsecured credit card that offers valuable rewards and benefits. But if your credit is damaged from past financial mistakes or you haven’t built up enough history, your only option may be a secured credit card. That’s because secured cards require you to deposit cash as collateral (usually starting at $200 or $300), instead of relying heavily on your credit score for approval.
The good news is that secured credit cards can serve as a great tool to help you build your credit and eventually graduate to an unsecured credit card. Here’s what you need to know about secured and unsecured cards to help determine which is the right fit for you:
What is a secured credit card?
A secured credit card is a type of credit card that requires you to submit a cash deposit upfront in order to open the account. This security deposit serves as collateral and typically determines the amount of your line of credit. For example, if you put down a $300 deposit, your credit line will equal $300.
The security deposit helps reduce the card issuer’s risk, since it can be used to cover your balance in the event you don’t pay your bill. That’s why secured credit cards usually have lower credit requirements and credit limits than traditional credit cards.
This makes secured credit cards ideal if you have a limited credit history or poor credit. And with responsible usage, these cards can help you build your credit and graduate to an unsecured credit card over time. If this happens — or if you pay your balance in full and close your account — your security deposit will be refunded.
What is an unsecured credit card?
You may not be familiar with the term “unsecured credit card,” but it’s actually what most people are referring to when they talk about credit cards. An unsecured credit card, also sometimes referred to as a “traditional” card, doesn’t require a deposit for approval. Therefore — as the name suggests — any debt you hold on the card is not backed or secured by collateral.
Card issuers typically use a credit check to analyze whether or not you’ll be a lending risk for an unsecured card. Your credit score is the biggest factor used to determine your approval status. Issuers often take your annual income and employment status into consideration as well.
Difference between secured and unsecured credit cards
Secured credit cards work just like unsecured credit cards — for the most part. The main difference is that the former requires you to submit a security deposit, and the latter does not. Additionally, a secured card bases your credit limit on the amount of your security deposit, while an unsecured card’s credit line is determined by your credit history. Otherwise, you can use a secured credit card to make purchases with any merchant that accepts credit cards.
Secured vs. unsecured credit cards
| Secured credit card | Unsecured credit card | |
|---|---|---|
| Deposit required | Yes | No |
| Average interest rates for new offers (as of September 2023) | 27.03% | 24.45% |
| Credit requirement | Limited, poor or fair credit | Can range from limited/poor credit to excellent credit |
| Credit limit | Matches your deposit | Depends on your credit history |
| Reports to the major credit bureaus (Equifax, Experian and TransUnion) | Typically | Yes |
| Offers rewards | Sometimes | Sometimes |
| Where can it be used? | Anywhere credit cards are accepted | Anywhere credit cards are accepted |
| Fees | Tend to have few or no fees | Cards for limited/poor credit can have many hidden fees |
Is a secured or unsecured credit card better?
The best card option depends on your credit history. Secured credit cards are better for individuals who don’t have good enough credit to qualify for traditional credit cards. The same is true for younger adults without established credit yet or looking for a beginner credit card. Starting with a secured credit card can help you build your credit over time and eventually qualify for other credit cards.
If you have good to excellent credit, you may qualify for an unsecured rewards credit card, which often come with higher credit limits, access to travel benefits, and other valuable perks. These cards also allow you to earn points or miles redeemable for travel, cash back or other popular redemptions.
Since secured credit cards require a security deposit instead of a credit inquiry, they are often easier to qualify for as long as you have the necessary funds. If you fail to make payments, though, the card issuer will use your deposit to cover the outstanding card balance.
TIP: You may still qualify for an unsecured credit card even with a lower credit score, but these options are often accompanied by costly fees. Secured credit cards are generally a more affordable option until you can qualify for a higher-tiered card.Regardless of which type of card you choose, you can follow some standard practices to get the most out of your card.
- Know your score: Knowing your credit score can help determine whether you qualify for a particular card.
- Pay your balance in full: By paying off your card balance each month, you’ll avoid costly interest fees charged by your card issuer.
- Make on-time payments: Pay attention to your card’s payment due date. Paying your bill on time each month will keep you from getting charged late fees and penalty APR. Plus, your issuer reports payments to the major credit bureaus, so paying on time can help you build a positive credit history.
- Limit your credit utilization: Credit utilization is the percentage of available credit you use. It is one factor that determines credit scores and includes any revolving credit accounts, including credit cards. Using too much of your available credit can make it more challenging to pay off your monthly balances and affect your credit score. Aim to limit your credit utilization to 30% or less.
Which banks offer secured credit cards?
A variety of banks offer secured credit cards, from large institutions to smaller banks and credit unions. That said, American Express, Chase and Wells Fargo do not issue secured cards since their main focus tends to be applicants with good to excellent credit.
| Issuer | Secured credit cards |
|---|---|
| American Express secured credit card | None |
| Bank of America secured credit card | Bank of America® Customized Cash Rewards Secured Credit Card Bank of America® Unlimited Cash Rewards Secured Credit Card BankAmericard® Secured Credit Card |
| Capital One secured credit card | Capital One Quicksilver Secured Cash Rewards Credit Card Capital One Platinum Secured Credit Card |
| Chase secured credit card | None |
| Citi secured credit card | Citi® Secured Mastercard® |
| Discover secured credit card | Discover it® Secured Credit Card |
| Navy Federal secured credit card | Navy Federal nRewards® Secured Credit Card |
| U.S. Bank secured credit card | U.S. Bank Altitude Go Visa Secured Card |
| Wells Fargo secured credit card | None |
Best secured credit cards
The best secured credit cards report your credit history to the three major credit bureaus (Equifax, Experian and TransUnion), have no annual fees and provide a path to graduate to an unsecured card. The following cards all fit that criteria:
Overall best secured card
Apply Now Best for a low deposit
Best for flat-rate cash back
Best unsecured credit cards
The best unsecured credit cards also report the major credit bureaus and have minimal fees. Other important factors include the sign-up bonus value, rewards rate, annual fee, interest rate and other benefits and protections offered by the card. Ultimately, the right card for you depends on your financial needs and how you plan to use the card. Here are some of our top picks for the best traditional credit cards:
Overall best credit card
Best rewards card
Best 0% APR card
Frequently asked questions
A secured credit card requires a refundable security deposit upfront that serves as your line of credit. You can use a secured credit card anywhere traditional credit cards are accepted.
You can get your security deposit back when you upgrade to an unsecured credit card or close your secured credit card account — as long as your account is in good standing and your balance is paid in full.
You can get a secured credit card by applying online or in-person at a bank and submitting the required security deposit. To be eligible, you typically need to be at least 18 years old and have a Social Security number, U.S. address and U.S. bank account.
If the secured credit card reports your account activity to the three major credit bureaus, you can build your credit over time with responsible usage. This means paying your balance on time and in full (if possible) every month, as well as staying well below your credit limit.
Chase is one of the few major issuers that doesn’t offer a secured credit card. If you’re looking to build credit with a Chase card, the issuer does offer the Chase Freedom Rise℠ Credit Card.