What’s the difference between secured and unsecured credit cards?
- A secured credit card is a type of credit card that requires a cash deposit as collateral. This deposit amount is usually equal to the credit limit you’ll receive.
- Most credit cards are unsecured credit cards, which means you won’t have to put down a deposit as collateral. Unsecured credit cards tend to come with better perks and rewards, lower fees and lower interest rates.
- Secured credit cards are usually for people with poor credit or no credit history, whereas unsecured credit cards are usually for people with good credit or better.
Finding a credit card issuer who will approve you for one of its products can feel impossible when your credit score is in the fair or bad range (669 and below) or you don’t have an established credit history. Fortunately, there’s a type of credit card that almost anyone may be able to qualify for: a secured credit card. With a secured credit card, consumers with fair to bad credit or no credit history can get the chance to build a good credit history and prove their creditworthiness over time.
What is a secured credit card?
A secured credit card is a type of credit card that requires a cash deposit as collateral. This deposit is normally close or the same as the credit limit amount you’ll receive. For example, if you apply for a secured credit card and put down a $500 deposit as collateral, you’ll typically qualify for a $500 line of credit as a result.
With a secured credit card, consumers who need to work on their credit can secure a line of credit. And since their payments are reported to the credit bureaus, they’ll get the opportunity to build credit and improve their credit history over time.
What is an unsecured credit card?
Most credit cards are unsecured. When a card is unsecured, this means you won’t have to put down a deposit as collateral. Unsecured credit cards tend to come with better perks and rewards, lower fees and lower interest rates. Generally speaking, unsecured credit cards are a better deal for consumers.
You may be wondering why anyone would want a credit card that requires a cash deposit upfront, but it’s not too difficult to understand why consumers with poor or no credit might be willing to apply. Qualifying for a traditional, unsecured credit card can be impossible when your credit score is poor or nonexistent, and you may not be able to improve your credit over time if you can’t find a lender to give you credit in the first place.
Secured vs. unsecured credit cards
The following chart explains some of the biggest differences between secured and unsecured credit cards:
| Card terms and features | Unsecured credit cards | Secured credit cards |
|---|---|---|
| Deposit required? | No | Yes |
| Minimum recommended credit score to qualify | Usually 670 or higher | Usually available for no credit history or scores below 669 |
| Average APR | Usually over 20 percent | APRs tend to be higher for secured credit cards |
| Annual fee charged? | Sometimes | Usually not; the security deposit is typically a one-time, refundable fee |
| Helps you build credit by reporting to credit bureaus | Yes | Yes |
| Rewards available? | Yes, with many rewards credit cards | Sometimes |
Applying for a secured card vs. unsecured card
Applying for a secured credit card is the same as applying for an unsecured credit card. You’ll start by comparing secured credit cards to find one that offers the benefits you really want, confirm that you qualify and then start an application.
In your secured credit card application, you’ll provide your name, birth date, address, Social Security number, employment information and income. Most secured credit cards will require you to pay your security deposit when you apply, which you can usually pay for with a debit card or a bank account. If your application for a secured credit card is not approved, the cash deposit you put down will be returned to you, usually within a few business days.
Building credit with a secured card vs. unsecured card
When it comes to building your credit score, the process is the same with secured and unsecured credit cards. Both types of cards report your activity to the three main credit bureaus — Experian, Equifax and TransUnion. The bureaus collect information about your balances and credit card payments and use it to build a history of credit usage in your name.
If your goal is building credit and keeping your score in the best shape possible, you should strive to pay your bill in full and on time each month and keep your credit utilization rate below 30 percent.
Upgrading from a secured card to an unsecured card
If you have had a secured card for a while and have improved your credit score as a result, you may wonder if it’s time to upgrade to an unsecured credit card. You’ll typically have two options: You can ask your card issuer to transfer your secured line of credit to an unsecured card, or you can simply apply for a new credit card and close your secured credit card account. Note that, when you close an old secured credit card account in good standing, you’ll get your full deposit back.
It’s usually easier to just apply for a new unsecured credit card once your credit score is in an acceptable range. This option lets you choose the right credit card for your needs, whether you want to earn cash back or receive other card benefits.
Best secured credit cards for 2023
Discover it® Secured Credit Card: Best for everyday rewards
The Discover it® Secured Credit Card is one of the few secured credit cards that lets consumers earn rewards without charging an annual fee. You’ll earn 2 percent cash back at gas stations and restaurants on up to $1,000 in combined spending each quarter (then 1 percent back) and an unlimited 1 percent cash back on everything else.
The Discover it® Secured Credit Card also allows you to set your own line of credit between $200 and $2,500, depending on the deposit amount you put down. Additionally, as a welcome offer, Discover will match all of the cash back you’ve earned at the end of your first year. You’ll also get free FICO credit score access, which can help you monitor your credit progress over time.
Capital One Quicksilver Secured Cash Rewards Credit Card: Best for travelers
The Capital One Quicksilver Secured Cash Rewards Credit Card is a solid option if you want to earn a flat rate of 1.5 percent cash back on all purchases — a fair rate even for an unsecured card. Plus, frequent travelers will earn an unlimited 5 percent cash back on hotels and rental cars booked through Capital One Travel.
The minimum (refundable) security deposit is $200 (to secure a $200 credit line), and there’s no annual fee. Plus, Capital One makes it easy to work toward a better credit score. You can stay motivated by watching your credit score grow over time with CreditWise from Capital One, and you’ll be automatically considered for a credit line increase in as little as six months.
Capital One Platinum Secured Credit Card: Best for low deposit requirements
The Capital One Platinum Secured Credit Card lets you secure a $200 line of credit with a $49, $99 or $200 refundable deposit, which makes this card a good option for anyone who doesn’t have a lot of cash to put down. However, Capital One will oversee your account to check if you will be automatically considered for a higher credit line in as little as six months.
You won’t earn any rewards with this card, but you won’t pay an annual fee to carry it, either. You’ll also get the chance to pick your own monthly due date, which can be convenient if you prefer to pay your credit card bill at the end of the month or around payday.
The bottom line
So, should you get a secured card or an unsecured card? The answer generally depends on your credit score and credit history. If you’re in the market for a secured credit card because you’re new to credit or you have a bad credit history, make sure you take the time to compare all the top secured credit card offers to find one that fits your needs, preferably one with the best benefits and lowest fees.
Up next
How to choose a secured credit card: 7 things to look for
How long should you keep a secured card?
Can you change a secured credit card to an unsecured card?
Best secured credit cards of 2024