Updated
Credit cards can help you build credit, earn rewards, and track spending. But there are actually two types of cards. If you're applying for one, you need to know the difference between a secured and unsecured credit card.
This guide to secured vs. unsecured credit cards can help you to make a more informed choice about what type of card is right for you. You'll also learn the pros and cons of both secured credit cards and unsecured cards.
Jump To
On This Page
Secured vs. unsecured credit card: What's the difference?
The key difference between a secured credit card and an unsecured credit card is that a secured card requires collateral. (We'll go into more detail on what that means below.) It's why an unsecured card is harder to qualify for.
What is a secured credit card?
A secured credit card requires you to have collateral. Collateral is some asset or item of value you can use to get a personal loan or credit card account. If you don't pay your debt, the lender can take your collateral to get back their money.
In the case of a secured card, that collateral is a security deposit. It usually equals the credit line on the card. Say you have a secured card with a $500 credit limit. You would be required to deposit $500 into a special savings account controlled by the lender. You could charge up to $500 on the card at a time. As you paid down your balance, you could charge again and again -- just like with a regular card.
If you didn't pay your bills, the lender could take the $500. But the objective is for the $500 to remain in the special account while you make monthly payments. The lender reports the payments to the credit reporting agencies, helping you to build credit.
Here are a few secured credit cards we like that could be a great fit for you. To learn more about what this type of card can offer, take a look at our full list of the Best Secured Credit Cards.
As of Apr. 16, 2024
|
|
|
| Discover it® Secured Credit Card |
OpenSky® Secured Visa® Credit Card |
Bank of America® Customized Cash Rewards Secured credit card |
|
Rating image, 5.00 out of 5 stars.
5.00/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
Rating image, 3.50 out of 5 stars.
3.50/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
Rating image, 4.50 out of 5 stars.
4.50/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
|
Credit Rating Requirement:
Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions.
Recommended Credit Score required for this offer is: New/Rebuilding Under(579)
New/Rebuilding Under(579) |
Credit Rating Requirement:
Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions.
Recommended Credit Score required for this offer is: New/Rebuilding Under(579)
New/Rebuilding Under(579) |
Credit Rating Requirement:
Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions.
Recommended Credit Score required for this offer is: Fair/New to Credit Under(669)
Fair/New to Credit Under(669) |
|
Welcome Offer: Discover will match all the cash back you’ve earned at the end of your first year. |
Welcome Offer: N/A |
Welcome Offer: N/A |
|
Rewards Program: 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter. 1% unlimited cash back on all other purchases - automatically 1% - 2% Cashback |
Rewards Program: N/A |
Rewards Program: Earn 3% cash back in the category of your choice: gas, online shopping, dining, travel, drug stores, or home improvement/furnishings and 2% cash back at grocery stores and wholesale clubs on the first $2,500 in combined choice category/grocery store/wholesale club purchases each quarter, then earn 1% 1% - 3% cash back |
|
Intro APR: Purchases: n/a Balance Transfers: 10.99%, 6 months |
Intro APR: Purchases: N/A Balance Transfers: N/A |
Intro APR: Purchases: N/A Balance Transfers: N/A |
|
Regular APR: 28.24% Variable APR |
Regular APR: 25.64%, variable |
Regular APR: 28.24% (Variable) |
|
Annual Fee: $0 |
Annual Fee: $35 |
Annual Fee: $0 |
|
Highlights:
|
Highlights:
|
Highlights:
|
Show More
Show Less
|
||
What is an unsecured credit card?
An unsecured credit card is not guaranteed by assets. A credit card company gives you a line of credit, usually after a credit check. If you have good credit or excellent credit, you may get a large line of credit, such as $5,000 or $10,000 or more.
The big difference between a secured vs. unsecured credit card is that you don't have to make an initial deposit when you get an unsecured card. There are no assets the lender could take if you don't pay your bill.
With an unsecured card, the lender relies on your word that you'll pay your bill, which is a bigger risk than a secured card. If you don't pay, they'd have to pursue collections -- such as going to court and getting a judgment against you.
Like with an unsecured credit card, you can charge up to the line of credit on a secured card. As you pay your bill, you can charge more. You may also be able to do a balance transfer, which lets you transfer the balance of other cards onto your new unsecured card.
There are a lot of options for unsecured credit cards. Here are a few we like that are worth comparing to get an idea of what they offer.
As of Apr. 16, 2024
|
|
|
| Wells Fargo Active Cash® Card | Blue Cash Preferred® Card from American Express | Discover it® Cash Back |
|
Rating image, 5.00 out of 5 stars.
5.00/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
Rating image, 4.50 out of 5 stars.
4.50/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
Rating image, 5.00 out of 5 stars.
5.00/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
|
Apply Now for Blue Cash Preferred® Card from American Express
On American Express' Secure Website. Terms apply |
||
|
Credit Rating Requirement:
Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions.
Recommended Credit Score required for this offer is: Good/Excellent (670-850)
Good/Excellent (670-850) |
Credit Rating Requirement:
Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions.
Recommended Credit Score required for this offer is: Good/Excellent (670-850)
Good/Excellent (670-850) |
Credit Rating Requirement:
Falling within this credit range does not guarantee approval by the issuer. An application must be submitted to the issuer for a potential approval decision. There are different types of credit scores and creditors use a variety of credit scores to make lending decisions.
Recommended Credit Score required for this offer is: Good/Excellent (670-850)
Good/Excellent (670-850) |
|
Welcome Offer: Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months. $200 cash rewards |
Welcome Offer: Earn a $250 statement credit after you spend $3,000 in purchases on your new Card within the first 6 months. $250 |
Welcome Offer: N/A Discover will match all the cash back you’ve earned at the end of your first year. |
|
Rewards Program: Earn unlimited 2% cash rewards on purchases. 2% cash rewards |
Rewards Program: 6% Cash Back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%). 6% Cash Back on select U.S. streaming subscriptions. 3% Cash Back at U.S. gas stations. 3% Cash Back on transit (including taxis/rideshare, parking, tolls, trains, buses and more). 1% Cash Back on other purchases. Cash Back is received in the form of Reward Dollars that can be redeemed as a statement credit or at Amazon.com checkout. 1%-6% Cash Back |
Rewards Program: Earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases—automatically. 1% - 5% Cashback |
|
Intro APR: 0% intro APR for 15 months from account opening on purchases and qualifying balance transfers Purchases: 0% intro APR, 15 months from account opening Balance Transfers: 0% intro APR, 15 months from account opening on qualifying balance transfers |
Intro APR: Purchases: 0%, 12 months Balance Transfers: 0%, 12 months |
Intro APR: Purchases: 0%, 15 months Balance Transfers: 0%, 15 months |
|
Regular APR: 20.24%, 25.24%, or 29.99% Variable APR |
Regular APR: 19.24%-29.99% Variable |
Regular APR: 17.24% - 28.24% Variable APR |
|
Annual Fee: N/A $0 |
Annual Fee: $0 intro annual fee for the first year, then $95. |
Annual Fee: $0 |
|
Highlights:
|
Highlights:
|
Highlights:
|
|
Apply Now for Blue Cash Preferred® Card from American Express
On American Express' Secure Website. Terms apply |
||
|
Show More
Show Less
|
||
Is a secured credit card or an unsecured credit card better for your credit?
There's no real difference between a secured vs. unsecured credit card in terms of credit building. As long as the secured card or unsecured card reports your credit account and payment history to each credit bureau, the card will help you to build credit.
This is important because if you apply for a personal loan, auto loan, or mortgage, lenders look at your credit report to see if you have a good credit score and a long track record of paying bills on time. Without good credit, you may only qualify for secured debt since lenders won't have reason to believe you'll repay it. If you apply to rent an apartment, landlords typically also consider your credit score in deciding whether to rent to you and setting your security deposit.
One way unsecured cards could be better for your credit is that they often have higher credit limits. This can impact your credit utilization ratio, which is the ratio of credit used vs. credit you have available. A lower ratio is preferred by lenders, but if you have a secured card with a low limit, it can be harder to maintain a low ratio.
This only becomes an issue if you charge a lot on your cards, though. If you don't charge much on your secured card and keep your utilization ratio well below 30%, you can maintain a credit utilization ratio on your secured card that helps you earn a good credit score.
Pros and cons of secured credit cards vs. unsecured credit cards
When comparing a secured vs. unsecured credit card, there are advantages and disadvantages to each option that are worth considering.
Advantages of secured credit cards
Here are the big advantages of a secured card:
- Easier to qualify for: Because lenders don't take any risk with a secured card, almost anyone can qualify regardless of credit score or credit history. This makes them some of the best cards for bad credit borrowers. They're also some of the best beginner credit cards.
- Can help you build credit: As long as the credit card provider reports payments, you can build a payment history. If you pay your bill consistently, you'll have a good chance of earning a good credit score.
Disadvantages of secured credit cards
There are also some disadvantages of secured credit cards:
- Often charge higher interest rates and a higher annual fee: You can mitigate this downside by looking for a no-fee card and by making sure you don't carry credit card debt from month to month.
- You have to make a cash deposit: This ties up your money with the credit card company.
Advantages of unsecured credit cards
Here are some of the biggest advantages of unsecured debt:
- You may be able to get a lower interest rate: A lower rate makes it cheaper if you must carry a balance. You can use a credit card interest calculator to compare how much debt would cost you with different card interest rates.
- You might have a wider choice of card options: There are generally more unsecured credit cards than secured credit cards to pick from.
- You could have access to better rewards and perks: The benefits and rewards programs on unsecured cards are often much more generous to cardholders.
Disadvantages of unsecured credit cards
There are also some disadvantages of unsecured cards:
- Harder to qualify for: Unless you have a good credit score, you may not be able to get approved for an unsecured card.
- Larger credit lines increase the risk of getting into debt: If you are allowed to borrow a lot of money and don't have collateral guaranteeing your ability to pay, you may get in over your head.
How to choose between a secured vs. unsecured credit card
Here are a couple ways to help choose between a secured vs. unsecured credit card:
- Consider your credit history: If you have no credit score or a low credit score, then a secured card may be your best and only option.
- Compare card features: Compare the interest rate, rewards programs, annual fee, and the cardholder perks on multiple unsecured and unsecured credit cards before you choose.
Most people deciding between secured vs. unsecured cards will find an unsecured card is a better option if they can qualify for one.
Still have questions?
Some other questions we've answered:
FAQs
-
The key difference between a secured vs. unsecured card is whether the borrower must put up collateral:
- Secured credit card: You have to make a deposit equal to the credit line. (That's the collateral.) This reduces the risk to the lender, so it's easier to qualify for a secured card.
- Unsecured credit card: Borrowers don't have to pledge collateral, so it's harder for a lender to get their money back in case of default. That's why lenders make it harder to qualify for an unsecured card. A higher credit score is often required.
-
When it comes to credit-building benefits, there's little difference between a secured vs. unsecured credit card.
However, an unsecured card may be better for good credit borrowers because they don't have to make a deposit equal to their credit line. There are also more choices for unsecured cards -- and many offer better rewards, lower interest rates, and a lower annual fee.
For bad credit borrowers, an unsecured credit card can be difficult to qualify for. A secured card may be better because borrowers can use the card to start building credit.
-
A secured credit card can boost your credit score as long as the credit card company reports to the credit reporting agencies. You'll also want to only spend what you can afford to pay back consistently so the card issuer reports on-time payments to the credit bureaus.
Our Credit Cards Expert
Christy Bieber is a full-time personal finance and legal writer with more than a decade of experience. She has a JD from UCLA as well as a degree in English, Media and Communications with a Certificate in Business Management from the University of Rochester. In addition to writing for The Ascent and The Motley Fool, her work has also been featured regularly on MSN Money, CNBC, and USA Today. She also ghost writes textbooks, serves as a subject matter expert for online course design, and is a former college instructor.
Share This Page
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
American Express is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Christy Bieber has positions in Visa. The Motley Fool has positions in and recommends Amazon.com, Bank of America, Target, and Visa. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.