Credit Cards – Secured VS. Unsecured

Credit Cards – Secured VS. Unsecured

Credit cards have been around for quite some time and are here to stay. The question many people have in regards to them involves the different types. There are quite a few minor variations with each card, and some major. The difference I want to focus on today is secured credit vs unsecured credit. The summary would be secured credit requires some form of deposit based on your credit-worthiness (your credit score, debt and everything else mentioned HERE). let’s get more in depth and learn about the pros and cons.


Secured Credit

Secured credit cards are very similar to traditional credit cards, but require some form of deposit. The required deposit will be based on your credit worthiness. If your credit score is very low, you should expect to pay for whatever line of credit you wish to have. This means if you want a $200 line of credit, you will have to deposit $200 into the account. If your credit is decent (floating around the 600 mark), you will only be responsible for a small deposit that is a portion of your credit limit.

This may sound like a bad deal initially, but this is typically geared towards people with no or poor credit. This will allow you to build your credit, or rebuild your credit if needed. You can use these cards at all of the places credit cards are accepted. There are no other limitations  with these cards other than the credit limit. With a lot of companies, you can even have your secured credit card line upgraded to an unsecured one. They will even refund the initial deposit you made when converting the account in some cases. Now that is a good deal!

Unsecured Credit

Unsecured credit is the traditional form fo credit. This form of credit card has a credit limit based solely on your credit worthiness, with no deposit or other requirements. Factors that pay a role into how much you are approved for are as follows

  • Your credit score
  • Monthly Income
  • Amount due for major bills each month
  • Open lines of credit
  • Accounts open with creditor or associated company

After taking all of that into consideration, you are either approved or disapproved. If approved, you are given the amount you are approved for and typically given a window of time in which your card will arrive. For an unsecured credit card, you would need at a minimum a score of around the upper 500’s. There are a few cases where people approved for a credit card with a credit score of mid to low 500’s, but they are definitely the exception and not the norm. Even then, the limit on the card more than likely was pretty low.


Choose Wisely

If you have a solid credit score and are financially stable, you can choose to pursue either one. While we at The Credit Dojo would recommend an unsecured credit card if you can get approved, sometimes a secured card works better. Typically if one has to use their own money for credit, they will use the credit wisely and only for emergencies. They would also be more inclined to pay it off as the creditor does not have much to lose. This can help some people as they will be even more likely to make regular payments. Avoid using credit just because it is available.

If you are financially stable and feel you can handle your credit well, I would highly recommend applying for an unsecured credit card. Otherwise, if you have some financial problems or a low credit score, then a secured credit card is your best avenue. There is a credit card available for just about any financial situation. Remember, make sure to use your credit card wisely. Do not splurge just because you have available credit. If you want to know more about your credit score (the main thing creditors review when making credit decisions) and things you can do to improve it, visit the following articles:

Thank you for visiting The Credit Dojo. As always, I hope you’ve learned something new today.