The difference between secured and unsecured credit cards

The key difference between secured and unsecured credit cards is this: Secured cards require an up-front deposit to open an account. Unsecured cards, or what you might think of as traditional credit cards, don’t require a deposit.

Keep reading to learn more about secured and unsecured credit cards to help you choose which is best for you.

What you’ll learn:

• Secured cards require a deposit, while unsecured cards don’t. 

• Compared to secured credit cards, some 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.

• After demonstrating responsible use of a secured credit card, you may be able to upgrade to an unsecured 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 one-time cash deposit. Typically, this deposit is refundable and can be earned back by doing things like making on-time payments and paying more than the minimum. Or if you decide to close your account, the card issuer may refund your deposit if your balance is paid in full.

Unlike secured credit cards, unsecured credit cards don’t require a deposit or other collateral to open an account. An unsecured credit card may be what you think of when you imagine a typical credit card.

Deposits aside, secured and unsecured credit cards work the same way. You can use both types of cards to shop in person and online. And you’ll receive a statement at the end of the billing cycle. Regardless of what card you have, it’s important to pay your statement on time each month.

Here’s a closer look at how secured and unsecured cards compare:

Compared to secured cards, some unsecured credit cards may come with lower interest rates and fees.

For some issuers, a secured credit card’s credit limit is equal to the amount of the initial deposit. But that’s not always the case. 

Capital One Platinum Secured card is one example. Depending on the cardholder, an initial security deposit of $49, $99 or $200 can open an account with a credit line of at least $200. Platinum Secured cardholders can also raise their credit limit by depositing more than the minimum.

Many unsecured credit cards offer rewards, such as cash back or miles. With secured cards, rewards may not be as common. 

But there are secured cards that offer rewards, such as the Quicksilver Secured Rewards card. With Quicksilver Secured, cardholders earn 1.5% cash back on every purchase. Quicksilver cardholders can also raise their initial credit line by depositing more than the minimum—up to a maximum limit—before activating their card.

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

If you’re starting out with a secured card, responsible use may help you build credit. And that could eventually allow you to apply for or upgrade to an unsecured card that offers more rewards and other perks. Another option may be to apply for a new unsecured card.

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 that every lender has its own requirements, and getting approved isn’t always guaranteed.

Here are some frequently asked questions about the differences between secured and unsecured credit cards.

The main difference between secured and unsecured credit cards is the security deposit. Secured cards require a one-time deposit to open an account. Unsecured credit cards don’t.

If you’re considering a new card, you could start by comparing cards to find one that’s right for you. Getting pre-approved can also help you get a better idea of which cards you may qualify for before you apply. It’s quick and won’t hurt your credit scores.