The difference between secured and unsecured credit cards

It might be hard to tell the difference between secured and unsecured credit cards. Not only do the two types of credit cards usually look the same, but they also work in many of the same ways. 

But a key difference sets these cards apart: Secured credit cards require cardholders to make an upfront deposit. Unsecured credit cards—or what you might think of as traditional credit cards—don’t. Keep reading to learn more about secured versus unsecured credit cards. 

Key takeaways

  • Secured and unsecured credit cards have similarities, but they are different types of credit cards. 
  • Secured cards require a deposit, unlike unsecured cards. 
  • Compared to secured credit cards, unsecured credit cards may have lower interest rates and fees and higher credit limits.
  • Secured cards can be useful for people looking to establish or rebuild their credit, because the deposit might make them easier to qualify for. 

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What is a secured credit card?

A secured credit card is a type of credit card that requires collateral to open an account. In this case, the collateral is a deposit. You can think of it like the security deposit required to rent an apartment. Terms can vary with each card, but the deposit is usually refundable. And it’s typically the same amount as the card’s credit limit

While temporarily parting with a deposit for a secured credit card may seem less than ideal, using a secured card responsibly could help you establish, build or rebuild credit. But remember, as with any credit card, getting approved for a secured card isn’t guaranteed. Each lender has its own policies. And be sure to pay on time and in full, if possible, to avoid fees and save on interest. 

Over time, you may be able to graduate to an unsecured card and get your deposit back as a statement credit. Or if you decide to close your account, some lenders may give back the deposit. For example, Capital One will refund your deposit if you pay off the card and close your account.

What is an unsecured credit card?

An unsecured credit card is sometimes called a traditional credit card. It’s the most common type of credit card. Unlike secured credit cards, unsecured credit cards don’t require a deposit or other collateral.

Secured vs. unsecured credit cards: Key differences

A security deposit is the main difference between secured and unsecured credit cards. But there are other differences between the cards, including: 

  • Interest and fees: Compared to secured cards, unsecured credit cards may come with lower interest rates and fees.
  • Credit limits: For some issuers, a credit limit on a secured credit card is the amount of the initial deposit. However, with the Capital One Platinum Secured Credit Card, you could have a $200 credit limit with a $49, a $99 or a $200 deposit. And an unsecured credit card can have a higher credit limit, depending on the lender and the cardholder’s creditworthiness.  
  • Rewards potential: Secured cards may offer rewards and perks, but they might not be as widespread as unsecured credit cards, many of which offer rewards like cash back, points and miles

Despite their differences, secured credit cards work like unsecured cards in several ways. You can use both types of cards to make purchases, and you’ll receive a statement at the end of the billing cycle. Be sure to pay on time and in full each month to avoid interest and late fees. 

If you don’t initially qualify for an unsecured credit card, responsible use of a secured card may help you build credit. And that could eventually allow you to upgrade to or apply for another card that offers rewards and other perks.

Building credit with a secured vs. an unsecured credit card

Building credit with a credit card generally works the same way whether you’re using a secured or an unsecured card. Regardless of the credit card type, issuers typically report your payment history and card balance to the three credit bureaus. Then, credit-scoring companies use that information, among other things, to calculate your credit scores.

But if you’re trying to establish credit, applying for a secured credit card can be a great place to start. Keep in mind that many other factors contribute to building credit. For example, some secured credit card issuers may not report to the credit bureaus, although Capital One does.

Choosing between secured and unsecured credit cards

Everyone’s financial situation is unique. The credit card that works best for someone else might not work for you. The same is true for deciding whether a secured credit card is better for you than an unsecured credit card.

When comparing your options, it’s a good idea to weigh your financial needs and goals. And consider which credit cards you might qualify for. Pre-approval or pre-qualification can help you compare options and find the right fit. Just remember, every lender has its own requirements, and getting approved isn’t always guaranteed.

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Secured vs. unsecured credit cards in a nutshell

Secured and unsecured credit cards share similarities. But their key difference is the deposit required for a secured credit card. If you’re considering applying for a credit card, comparing secured and unsecured credit cards may help narrow your options.

With pre-approval from Capital One, you can find out whether you’re pre-approved for some of Capital One’s credit cards before applying. It’s quick, and it won’t hurt your credit score.

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