Unsecured Credit Cards
Unsecured credit cards are the most common type of credit card around. They don’t require a security deposit from applicants before being be issued and they are offered by most of the major credit card companies.
Unsecured cards can allow you many financial freedoms. You can make hotel and airline reservations, purchase items online, or pay for things as you shop and eat around town. Many of these cards offer cash back or reward options, as well as tempting introductory rates, and the ability to earn points or miles for travel.
How do you qualify for an unsecured credit card?
Credit cards are issued to customers based on their ability to pay back the borrowed money. If your credit history is good, creditors will generally be more willing to issue you an unsecured card which doesn’t require a security deposit to be approved. Generally speaking, you’ll need to have a credit score of at least 650 to qualify for an unsecured card.
When you apply for a credit card, the issuing bank performs a credit check. The better your credit history and credit score, the lower interest rate you’ll be charged. Other factors, such as your existing debt load, may be used to determine the credit limit they offer you. And whether you are charged an annual fee or not may be influenced by your credit score.
If you have a poor credit score or limited credit history, getting a secured credit card may make more sense. After several months (and up to a year) of using your card responsibly and making your payments on time, you may then be able to convert your account to an unsecured card. You may have to contact the lender about this option if they don’t do it automatically.
Unsecured vs. Secured credit cards
The biggest difference between a regular and a secured credit card is the security deposit required on the secured card generally acts as the spending limit on the card. Both types of cards will show up as open credit card accounts on your credit report when they are reported to the credit bureaus.
Below is a summary of the how secured and unsecured cards are similar and how they vary:
Unsecured Credit Cards
- No deposit required
- Requires a good credit rating to qualify
- Credit limit determined by your credit score
- May not have an annual fee
- Reports activity to credit bureaus
Secured Credit Cards
- Deposit required
- Can qualify even with no or poor credit
- Credit limit determined by your security deposit
- Usually has an annual fee
- Reports activity to credit bureaus
Both secured and unsecured credit cards can be used for everyday purchases or to reserve a rental car or motel room. Secured credit cards are often easier to get for someone with poor credit and your security deposit will be refunded once you graduate to an unsecured card. On the other hand, if you fail to make your monthly payments, your credit issuer may close your account and use your security deposit to pay your balance.
Other Considerations
Typically, unsecured cards have lower interest rates than secured cards. But it is wise to compare interest rates, annual fees, transaction and late fees, and over the limit charges on all credit card offers before making a decision on the best card for you.
Once you get a credit card, be sure to keep your balance low and make your payments on time. This will help improve your credit. It also makes sense to use your card at least every three to six month to prevent it from being closed due to inactivity.
If you need a more specialized credit card, check out our various cards below.
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