What is an unsecured credit card?

When you imagine a typical credit card, you might be thinking of an unsecured credit card. An unsecured card is a type of credit card that doesn’t require a security deposit to open an account. They’re called unsecured cards because they don’t require collateral to back or “secure” the account like secured credit cards do. 

Find out how unsecured credit cards work, how they differ from secured credit cards, and what to consider before applying.

What you’ll learn:

• Most credit cards are unsecured, meaning they don’t require a security deposit to access a credit line.

• Unsecured credit cards may come with higher credit limits and lower interest rates compared to secured credit cards. 

• Like a secured credit card, an unsecured card can be a useful tool for building credit when used responsibly.

• Having good or excellent credit scores may make it easier to qualify for an unsecured card with better terms.

Unsecured credit cards have revolving credit lines. They’re open-ended, meaning cardholders can borrow against the line and repay it repeatedly.

An unsecured card also has a credit limit, which is the maximum amount a cardholder can borrow. The amount of available credit goes down as the card is used. As debt is repaid, available credit is restored.

Unpaid balances carry over to the next billing cycle and may accrue interest. Paying off credit card balances each billing cycle is one way to avoid interest charges on new purchases.

The major difference between a secured and an unsecured card is the security deposit required to open a secured credit card account. That deposit is typically refundable, and it acts as collateral to back the account.

People with higher credit scores may have more options for unsecured credit cards than those with lower credit scores do. Take a closer look at how credit score ranges could affect eligibility for unsecured cards: 

• Good or excellent credit scores: Some unsecured cards are only available to people who have good credit scores and above. FICO® says good credit scores range from 670 to 739. But remember that lending decisions are up to the credit card issuers, not credit-scoring companies. 

• Fair credit scores: Unsecured cards may be available to people who have fair credit scores. FICO says fair scores range from 580 to 669.

• Poor credit scores: You may have options for an unsecured credit card even if your credit is considered poor, although those options might be limited. But with responsible use of a credit card, you can work to improve your credit scores over time.

Like all credit, unsecured credit card debt can be good or bad. No matter what type of debt you have, it’s important to use it responsibly by doing things like paying your bills on time each month. Doing so can make debt a positive and allow you to use it to build credit.

Getting an unsecured credit card involves a few key steps. Here’s a breakdown of what the process might look like:

1. Check your credit scores: Knowing where your credit scores stand before you apply could help you identify which cards you’ll likely qualify for.

2. Research and compare: Comparing features and terms could help you find the best fit for your spending habits. Interest rates, rewards and fees are a few places to start. 

3. Apply: If you have a card in mind, you can submit an application, which is commonly done online. Expect to be asked for some personal and financial details. You can also see whether you’re preapproved. If the process is like Capital One’s, checking won’t hurt your credit scores.

4. Await a decision: The card issuer will review your application and creditworthiness to decide whether to approve you. This could be nearly instant, but it could take longer.

Whether an unsecured credit card is right for you depends on your financial situation and goals. If they’re used responsibly, credit cards can be great tools for establishing and building credit, budgeting, and covering unexpected expenses.

Here are a few examples of who might be a good fit for an unsecured credit card: 

• People who want credit card rewards: A rewards card can help you get the most out of the spending you’d be doing anyway. And there are many different types of rewards cards to choose from. If you want to earn rewards on everyday purchases, a cash back credit card could be a good option. If you’re a frequent traveler or planning a big trip, travel rewards cards might be worth a look.

• Business owners: Business credit cards can help business owners earn rewards for business spending, keep track of expenses and establish a business credit score. Business cards may also offer benefits tailored to business owners.

If you don’t qualify for an unsecured credit card right now, you may still have options. Here are two tools that may help you establish and build credit with responsible use so you can increase your odds of qualifying for an unsecured credit card in the future:

You have to put down a refundable security deposit to open a secured credit card account. Once you’ve been approved and made your deposit, you can use the card like you’d use an unsecured card.

Being an authorized user allows you to access the credit card account of another trusted person. There’s generally no credit check or application involved to become an authorized user. If both the account holder and the authorized user use the card responsibly, it may help build both people’s credit.

But it depends on the credit card issuer’s policies and the credit bureaus’ policies about how activity is reported and recorded. And if the authorized user or the account holder doesn’t use the card responsibly, it can hurt both people’s credit.

Still have questions about unsecured credit cards? Here are answers to some frequently asked questions:

An unsecured credit card doesn’t require a security deposit and offers access to a revolving line of credit. It may come with benefits like cash back or travel rewards that can help you make the most of your purchases. Having a higher credit score can make it easier to qualify for an unsecured card with better terms. But there may still be unsecured card options for people with fair credit or who are building credit. 

If you’re ready to explore card offers, you can compare Capital One credit cards and check whether you’re pre-approved with no risk to your credit scores.