Secured vs Unsecured Credit Cards: Which One to Choose?


Having a credit card is a great advantage if you’re looking for financial flexibility and credit-building opportunities. But which should you choose when it comes to secured vs unsecured credit cards?

In this article, we’ll:

  • help you decide which type of card is more suitable for you
  • discuss their key features, eligibility requirements, advantages, and disadvantages
  • talk about which one makes better sense for your financial and credit situation
  • answer the most common questions cardholders have about these credit cards

Read on!

Secured vs Unsecured Credit Cards

Secured and unsecured credit cards are common on the market. These two types of cards, however, are different in the way they serve cardholders. One helps people with bad credit re-build or re-establish their credit, while the other helps cardholders become more financially flexible.

What Is a Secured Credit Card?

A secured credit card is backed by a deposit, which serves as the lender’s collateral in case you fail to make payments or in the event of default.

These types of cards are useful if you don’t have access to traditional cards. If you have a limited credit history or poor credit score, you can use secured cards as an alternative to unsecured ones.

Building credit with a secured credit card is also easy: you should make regular payments and never miss a due date. The lenders will then report your payments to major credit bureaus, which will then reflect the regular payments on your credit report.


You can enjoy many secured credit card benefits, such as building credit and in time even upgrading to an unsecured card. Here’s an overview of some of the important secured credit card features:

  • APRs: the average APR on secured cards is around 16.63%, depending on your credit rating. Generally, though, a good secured card APR is one that you feel comfortable paying. Moreover, APRs can be:
    • Regular APR: the rates that apply to your purchases, transfers, and cash advances.
    • Introductory APR: a promotional rate for new customers that’s lower than the regular APR.
    • Annual APR rate: the rate applied for the whole year of credit card use as opposed to monthly rates.
  • Balance transfer fees: secured cards allow balance transfers up to your credit limit, which is equivalent to the credit card security deposit. Balance transfer fees are often at 0% for new customers.
  • Security Deposit: the security deposits on secured cards start at $200 and can be as high as $2,500.
  • Cashback Options: secured credit cards have an average of 1%-2% cashback rate. Many great credit cards also offer signup bonus features on top of cashbacks.
  • Credit Building: secured credit cards are great for credit building. If you pay regularly, you will start seeing improvements in a few months to a year.
  • Transition to Unsecured Loans: after building credit and meeting other eligibility requirements, you can upgrade to an unsecured credit card with your credit card issuer.


When opening a secured credit card account, you can either choose a bank, a credit union, or a credit card company. If you’re a non-US resident, you may still acquire a credit card as long as the issuers can verify your identity.

During the approval process, these issuers will check your credit history and score. Most of the time, secured card issuers don’t require any minimum credit score, which is great for individuals with bad credit who also want access to credit cards.

Most banks don’t require you to have an account with them to acquire a secured credit card. However, you may still need to open an account with them to easily make your security deposit.

Security deposits are used by the lender as insurance in the event of default, and they also serve as the secured credit card limit. For instance, if your deposit is $2,500, your credit card limit is also $2,500.

Moreover, you must show the issuer that you have income, which tells them about your ability to make credit card payments.

If you’re worried about making payments because of limited income, you should look for credit cards with no annual fees, since they cost lower in terms of payments and fees. Having a co-signer with an excellent credit rating and stable income may also help you get approved.

Closing a secured credit card will hurt your credit score since your credit utilization ratio will dip, which tells bureaus and reporting agencies that your available credit is low.

As a result, it’s better to transition the card into an unsecured one if you can instead of closing it.

Pros and Cons of Secured Credit Cards

As a secured credit card user, you’ll enjoy the following advantages:

  • Reporting to Credit Bureaus: your regular payments are reported to major credit bureaus.
  • Credit Score: an excellent payment history on secured cards is reflected on your credit report and score.
  • Transition to Unsecured Options: you can raise your credit card limit and eventually upgrade to an unsecured credit card.

Meanwhile, watch out for the following disadvantages of using secured cards vs unsecured credit cards.

  • Interest Rates: secured credit cards generally charge higher interest rates than unsecured cards, especially if you have bad credit.
  • Other Fees: apart from hefty interest rates, you must also watch out for other fees associated with the issuers’ services, such as late fees, paper statement fees, and others.

What Is an Unsecured Credit Card?

Unsecured credit cards are the most common types of credit cards, where you don’t need to make a security deposit. In this case, the credit you’re taking on isn’t secured by any collateral.

Unsecured credit cards are great for people with a good or excellent credit rating. Apart from not making any security deposit, they enjoy better interest rates and more bonuses and rewards from the issuer.

Still, unsecured credit cards also come with some downsides. So, when comparing secured vs. unsecured credit cards, which is better for you? The following sections will help you find out.


Like secured credit cards, the best unsecured credit cards have important features that you should consider. Here’s a quick overview:

  • APRs: for people with excellent credit scores, the average APR on unsecured credit cards is around 10%. If you have good or average credit, APRs may be as high as 29%.
    • Just like secured cards, unsecured credit card providers may charge regular or annual interest fees, as well as introductory APRs.
  • Credit Building: you can also use unsecured credit cards for building credit — if you make regular payments and never miss a due date.
  • High Credit Limit: while secured credit card limits are equal to the security deposit you make, unsecured credit cards offer a bigger line of credit.
  • Rewards and Bonuses: unsecured credit card providers are generous when it comes to rewards and bonuses, which typically include cashbacks, rebates, signup bonuses, and balance transfer programs.


You can apply for unsecured credit cards through your bank, credit union, or credit card company. Before going to the issuer, double-check your credit report for any errors or inaccuracies that may affect your application negatively.

The interest rate and credit limit you’ll get are based on your credit score. Different issuers may have different requirements regarding the minimum credit score for unsecured credit card approval, so make sure that you meet their criteria.

The issuers also have a minimum income requirement — usually between $10,000 and $12,000 per year. If your income doesn’t meet this requirement, or if you have too much debt, they may reject your application.

Moreover, if you have bad credit, many issuers will automatically deny your application. Unsecured credit cards for bad credit are available with some lenders if you know where to look. Keep in mind, though, that such providers will likely charge higher interest rates to offset risks. They may also impose a tighter credit limit.

Many credit card providers accept co-signers (people who can take responsibility for your debt in case you default). Adding a co-signer helps you get better terms and rates.

If you can’t get a co-signer, you can try becoming an authorized user of another person’s credit card. If that also fails to provide a satisfactory guarantee, you can always apply for a secured credit card to help you build credit.

Other eligibility requirements for getting unsecured credit cards with no deposit include being a US resident and/or providing proof of identity, such as government IDs and other legal documents.

Pros and Cons of Unsecured Credit Cards

Unsecured credit cards provide the following benefits:

  • No Upfront Deposit: unsecured credit cards require no security deposits.
  • Higher Credit Limit: you’ll get a great line of credit when using unsecured credit cards.
  • More Rewards and Bonuses: most major credit card companies offer a wide variety of rewards and bonuses for cardholders.
  • Lower Interest Rates: if you have excellent credit, you can get lower rates and a better loan term from credit card providers.

Since we’re comparing secured vs. unsecured credit cards to know which one is better, we have to consider the following downsides:

  • Eligibility Requirements: most major credit card providers have strict eligibility criteria.
  • Overspending: due to greater credit limits, unsecured credit cardholders tend to overspend and lose track of their finances.
  • Potential Damage to Your Credit Score: if you default on an unsecured card, the damage to your credit rating can be great.

Which One Should You Choose?

The choice depends entirely on your individual situation. Are secured credit cards good? Yes, if you’re ineligible for traditional cards and you want to build credit. It’s easier to make payments on secured cards since the credit limit is low. Regular payments make for a great credit report, and a great credit report translates to a better credit score — which ultimately lets you transition to unsecured cards.

But if you’re already eligible for an unsecured card, go for it. All you must do then is make responsible spending decisions and regular payments.

Secured vs Unsecured Credit Cards

Key Features and Differences

Feature Secured credit card Unsecured credit card
Average APR 16.63% 10%
Loan amount/Credit Limit $200 to $2,500 $1,000 to $100,000
Loan term Not applicable Not applicable
Min. credit score 550 to 600 600 to 650
Security deposit $200 to $2,500 Not applicable
Cashback 1%-2% Variable
Balance transfer 0% for new customers 3%–5% of the total amount you transfer
Credit building Yes Yes
Credit monitoring Yes Yes
Rewards and bonuses Yes Yes


The difference between secured and unsecured credit cards lies in the way and the reasons cardholders use them. Secured credit cards are great if you need to build credit and if you want to eventually be eligible for unsecured cards.

Meanwhile, unsecured credit cards give you more flexibility and freedom when it comes to spending, rewards, and bonuses. Your choice will depend on your credit situation and goals.


Do I get my deposit back from a secured credit card?

Yes, you do. With most major credit card providers, the security deposit you make is fully refundable when you upgrade to an unsecured card or when you close your account. On the flip side, if you don’t pay your balance in full, they’ll use your deposit as collateral.

When is a secured credit card a good idea?

A secured credit card is most useful when you need access to credit but you can’t acquire traditional credit cards. It’s also a great vehicle for building up your credit rating and history. Secured credit cards also generally more accessible than unsecured ones, which have strict eligibility requirements.

Can a secured credit card become unsecured?

Yes, it can. However, you need to meet the eligibility requirements for unsecured cards. You can upgrade when your credit has improved, your income meets the issuer’s requirements, and you’re confident that you can pay the balance as well as other fees associated with the account regularly.

How to get an unsecured credit card?

To get an unsecured credit card, you must meet the eligibility requirements of the issuers. These include a minimum credit score, minimum income, and proof of identity. You can also add a co-signer for your application to get approved faster and to get better rates and terms.

Is it difficult to get an unsecured credit card?

Generally speaking, unsecured credit card providers have tougher requirements when comparing secured vs unsecured credit cards. With secured cards, issuers use the security deposit as collateral in the event of default, whereas unsecured card providers face greater risks since they don’t hold any collateral or deposit from the cardholder.


I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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