What is the Difference Between Secured and Unsecured Credit Cards?

Main Differences 

There are two main differences between a secured and unsecured credit card. The first distinction is that for a secured card, the amount you deposit becomes your credit line. This means that you are required to fund your credit card in full when it is secured. On the other hand, an unsecured card does not place these limits on your spending.

This means that unsecured cards are a lot harder to gain access to. Banks require that you have higher credit scores so that there is a greater likelihood that you will make all of your payments.

Which Card is the Best Fit for You

The secured card is a better option for those with a poor or limited credit history or those who have spending issues in general. This is because the key feature of secured cards is that they report to national credit bureaus in order to help improve your credit score. Therefore, these cards are typically cheaper to own and easier to gain access to, yet they have fewer rewards and bonuses than unsecured cards.

In contrast, unsecured credit cards typically allow cardholders to have more spending freedom since banks have more confidence that the cardholders will pay their balance. However, this makes these cards riskier if you have trouble controlling your spending habits. Cardholders will be able to benefit, though, from greater signup bonuses and rewards programs with their unsecured card.

If You Choose a Secured Card

If you choose a secured card, there are a few things you should do to ensure your success in building your credit score. First and most importantly, it is crucial to make all of your payments on time. The easiest way to avoid having to pay interest on your balance is by paying your balance in full monthly. This also has the added bonus of helping you to build your credit. It is also very important to charge fees on your card in small increments so as to prevent your bill from becoming too expensive.

Some secured cards that we recommend for building credit are:

• First Progress Platinum Select Secured card
• Discover It Student Cash Back
• OpenSky Secured Visa 

All of these cards are fairly easy to gain access to and help their cardholders to successfully build their credit score.

Bottom Line

Ultimately, it is very important for cardholders who want to build their credit to steer clear of unsecured cards. Even if your score is high enough to gain access to one, the rewards these cards offer are the main feature of an unsecured card. In contrast, secured cards help you to build your credit score through spending restrictions. 

We recommend that those who have limited or poor credit history start with one of the aforementioned secured cards, and then advance to an unsecured card farther down the road. This is the most efficient way to improve your credit score before focusing on additional perks and bonuses.