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- What Is a Secured Credit Card?
- What is an Unsecured credit Card?
- Unsecured Credit cards Versus Secured credit cards
When you talk about a secured credit card, you’re talking about a card with a guarantee of money refund, or simply put, it is a credit card with collateral. Every secured credit card requires a cash deposit. It is this deposit that reduces the risk on the side of the lender, making the cards available to people with bad or no credit history. Let’s take a look at what a secured credit card is all about and what differentiates it from a regular unsecured credit card.
What Is a Secured Credit Card?
A secured credit card is a credit card that requires a cash collateral deposit when you open the account. This initial deposit made before you acquire ownership of the credit card minimizes the risk of the credit card issuer. So that if you are not able to pay your bill the issuer will take the money from your deposit as collateral.
Because of the nature of the card, it is usually available to those with bad credit, little credit history, or no credit at all.
Your deposit is usually equal to your credit limit, so if you deposit $500, you will have a $500 limit. Use the card wisely and you can improve your credit well enough to qualify for an unsecured card that does not require a deposit.
Some of the best-secured cards allow you to upgrade your account directly to an unsecured credit card. Others do not have an upgrade procedure, so you will have to apply for an upgrade elsewhere, then close the secured card.
It is important to note that when you upgrade a secured credit card or close the account while in good standing (meaning you have made complete payment) the issuer gives you back your deposit.
Also, the minimum and the maximum amount you can deposit differs on the card, but you should be ready to come up with at least a minimum of $200 for a secured card deposit.
Comparing and Contrasting secured credit cards and unsecured credit cards
Whether or not you need a secured card boils down to how good your credit is
For unsecured cards which do not need a deposit and which because of that fact pose more risk to the issuer, credit-card companies expectedly require an average credit of at least good or excellent credit for the best ones.
Some unsecured credit cards market themselves as easy to qualify even if you have bad credit. But sadly these cards usually charge extremely high fees.
Alphawallstreet recommends you apply for a secured credit card rather than applying for a high fee unsecured credit card.
How Does a Secured Credit Card Work?
When the initial deposit is paid, secured cards work the same way unsecured credit cards work.
- You can use them wherever credit cards are accepted, even online.
- Your bill comes monthly, and you make payments for the purchases you have made. (But know that your deposit is not used to make payment for purchases. See the difference between a secured credit card and prepaid cards below.)
- You incur interest if you carry a balance.
- You can build or rebuild your credit by using your card responsibly and paying up your balance on time.
Many credit card issuers offer both secured credit cards and unsecured credit cards. Yearly fees are common but you should not pay more than $50.
You can find many options with no yearly fee at all among our favorite secure cards.
If you cannot qualify for an unsecured credit card, a secured card can be a very good instrument as you look to improve your credit. But it is as important to be responsible with a secured card as it is with any other loan that appears on your credit report.
While secured credit cards all function the same way as a regular card, pay a deposit, use the card, build credit, get your deposit back and move to an unsecured card. They come with different characteristics. For example, flexible deposits and credit lines.
The capital one platinum secured credit card typically requires a $200 minimum deposit, but some of the applicants may be able to get a $200 credit line with a $99 deposit.
You also can deposit up to $1000 to get a higher credit line. Unlike with so many secured cards, you can pay up your deposits in bits of installments. And if you make payments on time you will have a chance of being considered for a higher credit line without depositing more money.
Rewards of Secured credit cards
- The Omega one golden secured cash reward credit card makes 1.5% cashback on all of the purchases offered by the regular golden card for people with good to excellent credit. The yearly fee is $0 with a minimum deposit of $200 and a maximum deposit of $1000 to $3000.
- Automatic Account Review of the Secured Credit Card
With the secured credit card, your account will be automatically reviewed in other for an upgrade to an unsecured card after seven months.
- Secured credit card Cashback on restaurants and gas stations
Most secured credit card also has benefits of 2% cash back at gas stations and restaurants on up to $1000 in combined purchases each quarter. All other purchases earn a $1 Yearly fee, $0 Minimum deposit of $200, and a maximum deposit of $2500
- No Credit Check
The Beautiful sky secured visa credit card does not offer benefits, and the issuer does not have unsecured cards to upgrade to (meaning that once you are qualified for a regular card, you will have to close this account to get your deposit back.)
But there is no credit check required to acquire this card, so even those with badly damaged credit may qualify, even if they have been rejected for other secured cards. This usually comes at a cost though __ a yearly fee of $35, a minimum deposit of $200, and a maximum deposit$3000.
What is an Unsecured credit Card?
The unsecured credit card is the most common type of credit card to lay your hands on. It does not require a collateral deposit for approval but unlike the secured credit card, if you don’t have good to excellent credit, it’s difficult to get approved for it.
Further below you will get to see the formal explanation and other very important information you must get to know about in other to better understand what an unsecured credit card is all about and how to differentiate between a secured credit card and an unsecured credit card.
Definition of Unsecured Credit Card
An unsecured credit card is a credit card that does not require any form of collateral deposit made in the initial stage of collation and usage.
A good example of an unsecured credit card is your visa, MasterCard that you sign up for when you open up a new account in the bank. You are given a credit limit and specific terms and conditions to abide by such as payment periods and interest rates.
It is also important to note that when people use the term credit card, they are usually referred to as an unsecured credit card. It is because most of the credit cards on the market today are unsecured.
How Unsecured Credit Cards Works
So many banks, credit unions, and other financial service providers offer unsecured credit cards. You have to apply with your personal information and your consent to a credit check to get one.
Once you have been approved for an unsecured credit account, you will be given a card that you can use online, in stores, and over the phone for purchases.
Unsecured credit cards are a kind of revolving credit. It means that you are permitted to spend up to a specified limit on the account, you can decide to either pay the balance in full at the end of the month billing cycle or revolve it to the next month.
When you pay up your balance in full, you do not have to pay interest on what you borrowed. However, when you choose to revolve the balance, you usually have to pay a certain amount of interest on it, and you have to at least make the required minimum payment each month.
Note: A very important tip that will help you, is knowing that to be approved generally for a credit card and a reasonable interest rate, you must have a very good to excellent credit score usually 670-799. You may be able to get an unsecured credit card with a lower credit score but you will likely have to pay a higher interest rate.
Unsecured Credit cards Versus Secured credit cards
Unlike unsecured credit cards, secured credit cards require that you pay a certain amount in deposit as collateral against the credit line offered. You can also think of it as a card you find yourself.
In secured credit cards, card issuers usually require a deposit for credit if the person applying is considered to be a credit risk meaning that they have no credit history at all or that they have a poor credit score, unlike the unsecured credit card where you can hardly get approved with a poor credit score or little to no credit history.
The credit card company has the right to take the deposit you give to cover the debt incurred if you failed to pay up a balance. In some cases, the cardholder would have to pay a yearly fee. Also note that these cards are not as likely to offer additional rewards programs in exchange for the fee, such as cashback or receiving points towards purchases.
Unsecured credit card is one of the best options when it comes to building your credit score but you would need a long credit history of on-time payments and a good credit score to qualify for these cards. What happens when you have no credit history and seek to rebuild your credit? Through secured credit card.
With a secured credit card, you don’t need to have a good credit score or even long credit history to qualify, you only need a security deposit that serves as collateral to qualify. Managing your secured credit card will help build your credit score. Your security deposit will be returned to you immediately you offset your debt