If you’re trying to build credit or simply want a convenient way to pay for purchases, credit cards can be a useful tool. But not all cards are the same. One of the first decisions people face is whether to apply for a secured credit card or an unsecured credit card.
The difference may sound small, but it affects how much access you have to credit, the fees you’ll pay, and how quickly you can improve your credit score. In this post, I’ll explain the key differences, the pros and cons of each, and which type might be better for your situation.
What Is a Secured Credit Card?
A secured credit card requires a refundable security deposit when you open the account. The deposit usually becomes your credit limit. For example, if you deposit $300, your credit limit is $300.
Lenders use this deposit as collateral, which makes secured cards easier to get if you have bad credit or no credit history. These cards still report to the three major credit bureaus (Experian, Equifax, and TransUnion), so using one responsibly can help you build or rebuild credit.
You can compare options through guides like NerdWallet’s list of secured cards to find ones with lower fees and better terms.
What Is an Unsecured Credit Card?
An unsecured credit card does not require a deposit. Instead, the bank extends you a line of credit based on your credit history and income. Most credit cards fall into this category.
Because no deposit is required, unsecured cards often offer higher credit limits, rewards programs, and perks like cash back or travel benefits. However, approval is harder if you have poor or limited credit.
To understand how lenders judge your creditworthiness, the Consumer Financial Protection Bureau provides a helpful breakdown of factors like payment history, credit utilization, and account age.
Key Differences Between Secured and Unsecured Credit Cards
| Feature | Secured Credit Card | Unsecured Credit Card |
|---|---|---|
| Deposit Required | Yes (refundable) | No |
| Approval Chances | Higher, even with poor or no credit | Depends on credit score and income |
| Credit Limit | Equal to deposit | Based on credit profile |
| Rewards & Perks | Rare | Common (cashback, travel points, etc.) |
| Best For | Building or rebuilding credit | Established credit users |
Pros and Cons
Secured Credit Cards
Pros
- Easier approval for beginners or those with bad credit
- Helps build credit when payments are made on time
- Deposit is refundable if the account is closed in good standing
Cons
- Requires upfront cash for deposit
- Usually lower credit limits
- Fewer rewards or perks
Unsecured Credit Cards
Pros
- No deposit required
- Higher credit limits possible
- More rewards programs and benefits
Cons
- Harder to qualify with poor credit
- Higher interest rates if you carry a balance
- Fees and penalties can be costly if not managed well
Which Should You Choose?
The right choice depends on your credit situation:
- If you’re new to credit or have a low score, a secured card is often the best starting point. It gives you access to credit while lowering the bank’s risk. After a year or so of consistent payments, many banks allow you to upgrade to an unsecured card.
- If you already have fair to excellent credit, you’ll likely qualify for an unsecured card, which offers more benefits and flexibility.
For example, someone rebuilding credit might begin with a secured card from their bank. After showing good payment history, they could apply for an unsecured card with rewards, such as those listed on Bankrate’s best credit cards.
Tips for Using Either Card Wisely
No matter which card you choose, the way you use it matters most. Here are a few tips:
- Always pay at least the minimum balance on time.
- Keep your balance low compared to your credit limit (below 30% is best).
- Check your credit report regularly at AnnualCreditReport.com for free.
- Avoid applying for too many cards at once, since each inquiry can lower your score slightly.
Final Thoughts
Secured and unsecured credit cards both serve a purpose. Secured cards help you start or rebuild credit, while unsecured cards reward you once you’ve built a stronger profile. The key is to match the card to your current financial situation and to use it responsibly.
Over time, good habits with either type of card can open the door to better credit offers, higher limits, and lower interest rates.
