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Secured vs. unsecured credit cards: What's the difference?

Yahoo Personal Finance· Getty Images
Updated 7 min read

Think about the last time you made a purchase — chances are, you used a credit card (or an app synced to your credit card). According to the Federal Reserve, credit cards were the most commonly used payment method in 2022, outpacing cash and debit cards.

However, if you have poor credit — or no credit at all — qualifying for a traditional credit card can be challenging. A secured card is a useful alternative that can help you improve or rebuild your credit.

Credit cards are issued based on your creditworthiness, meaning your credit history and income. But if you don't have good credit or haven't established your credit history yet — a common problem for young adults — qualifying for a traditional credit card can be challenging or downright impossible.

A secured card can be a tool to build your credit or reestablish your credit after making past credit mistakes.

Unlike traditional cards, secured credit cards require a security deposit. That deposit can be anywhere from $200 to $1,000, and that security deposit serves as the card's spending limit, so you can only charge up to that amount. Once you reach that limit, you have to make payments or pay off the balance before you can use the card again.

Secured cards function just like regular credit cards; you can use them for purchases that you make in person or online. If you don't pay off the balance in full by the payment due date, you'll have to pay interest charges.

As you use the card and make payments, the credit card issuer reports your usage to the major credit bureaus: Equifax, Experian and TransUnion. If you limit your balance and make your required payments on time, a secured card will help you build your credit history and improve your credit score.

The eligibility requirements tend to be much less stringent for a secured card than for an unsecured credit card. Although specific requirements vary by issuer, applicants generally have to meet the following criteria:

  • You must be at least 18 years old

    • If you're under the age of 21, the law says credit card issuers must require you to provide proof of income or add a cosigner

  • You must have a valid U.S. mailing address

Secured credit cards may not require credit checks, so you can get a card without impacting your credit score during the application process.

Secured cards tend to be barebones when it comes to benefits, but you usually get the following perks:

  • Credit score access: Most cards will give you access to either your Vantage or FICO credit score so you can monitor your progress.

  • Credit reporting: Secured cards usually report to the three main credit bureaus.

There are some secured credit cards that offer additional benefits, such as cash-back rewards, but they tend to be much more limited than the rewards of unsecured credit cards.

Generally, secured credit cards have higher annual percentage rates (APRs) than unsecured cards. And they require users to pay a security deposit to open an account. The security deposit is refundable, but you do need to have an upfront sum of cash available to qualify for a card.

Some secured cards have additional fees, such as monthly or annual account fees and late payment fees.

Unsecured cards or traditional cards are the most common type of credit card. As unsecured cards, they don't require a cash deposit; they're issued based on your credit history, so there's no need for a deposit as collateral.

Unsecured credit cards are usually harder to get than secured cards. Credit card issuers will review your credit and income when reviewing your application. If you have no credit history or a low credit score, the issuer will likely deny your application. Typically, you need good to excellent credit to qualify for unsecured credit cards with competitive rates and other benefits.

An unsecured credit card's limit is set based on your credit history. The credit limit can be anywhere from $500 to $20,000 or more. To qualify for the higher end of the range you'll need excellent credit and a higher income.

Credit card benefits tend to be much more substantial on unsecured credit cards than secured credit cards. Besides perks like credit reporting and credit score access, cardholders can usually enjoy some or all of the following benefits:

  • Rewards: If you have a rewards credit card, you can earn cash back or points on eligible purchases. You can redeem those rewards for statement credits, gift cards, or travel accommodations.

  • Insurance: Some cards offer some types of insurance coverage, such as travel cancellation coverage, car rental insurance or even cell phone protection.

  • Purchase protection: With some unsecured credit cards, your purchases are covered by extended warranties.

  • Introductory APR offers: With some unsecured credit cards, you can take advantage of introductory APR offers. Some cards give you a low APR for a limited time — such as 0% APR for six months — on purchases or balance transfers. These offers allow you to finance a purchase or pay down debt without building interest charges.

Some unsecured credit cards — particularly premium rewards cards — charge annual fees. But there are many options with no annual fee that still offer valuable rewards.

APRs vary by credit card and your credit history. According to the Federal Reserve, the average APR for all credit cards that assessed interest was 22.77% as of August 2023, the last available data.

Are credit cards secured or unsecured? The answer to that question depends on the specific card and your credit history. If you have poor credit, a secured card may be your only option, but users with good to excellent credit can qualify for most unsecured cards.

If you aren't sure which type of credit card is best for you, consider these common scenarios:

The U.S. Government Accountability Office reported that 45 million Americans don't have credit scores because they don't have enough information on their credit reports to generate a score.

If you're one of the millions of people without a credit history or score, you'll likely need to start with a secured credit card to start building your credit.

Missed payments or defaulted loans can significantly damage your credit. If you've made mistakes with credit cards or loans in the past, qualifying for an unsecured credit card may not be possible.

A secured card will allow you to rebuild your credit and, over time, help you qualify for an unsecured card later.

Individuals who recently immigrated to the U.S. often find it difficult to qualify for credit since they don't have a U.S. credit file. If you're new to the country, a secured credit card is one way to establish your credit.

Those with established credit histories and good to excellent credit scores — meaning a score of 670 or higher — can skip the secured credit card and apply for unsecured credit. They'll qualify for most cards and, if they have sufficient income, can likely qualify for a card with robust rewards and added benefits.

Building a solid credit history is an important part of managing your finances, but getting started can be challenging. If you don't have any credit history yet or have poor credit from previous mistakes, a secured credit card that requires a deposit can allow you to establish and improve your credit over time.

To maximize the benefits of a secured credit card, set up calendar reminders for yourself so you never miss a payment. And keep your balances low — your payment history and how much of your available credit you use are two of the biggest factors impacting your credit score.

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