What’s the Difference Between Secured and Unsecured Credit Cards?

Credit cards with locks, locked and unlocked

You may feel overwhelmed while searching for the right credit card, especially because there are so many options to choose from. At first you may run into student credit cards, which are mostly marketed toward college students. Then, you’ll come across cash back credit cards, rewards credit cards, travel credit cards, and balance transfer cards – but that’s not all.

Secured credit cards and unsecured credit cards are two categories of credit cards you’ll find during your search. Where the former category is for credit newcomers needing a leg up when it comes to building credit, the latter is available to applicants who are already established.

Knowing the difference between secured and unsecured credit cards can help you figure out which you can qualify for and what to look for as you compare options. Read on for an overview of secured credit cards vs. unsecured credit cards and who these cards are best for.

What is a Secured Credit Card?

Secured credit cards are credit-building cards that require a refundable cash deposit as security. This deposit then turns into your credit limit and you get the benefit of using the credit limit to pay for bills and purchases.

For example, many secured credit cards require a minimum refundable cash deposit of $200, in which case you would have a credit limit of $200 right off the bat. From there, you could use the card for spending and bills up to the credit limit, and your monthly payments would be reported to the credit bureaus to help you build credit along the way.

You may be wondering why anyone would want a credit card that requires cash as collateral and has a low starting limit. The main benefit of these cards is the fact that almost anyone can get approved even applicants with poor credit or no credit history at all. Many secured cards also come with no annual fee required, and the best ones even offer cash back for spending.

The point of secured credit cards is letting users build credit so they can graduate to a better credit card later on. For example, you may be able to graduate from a secured card to an unsecured card and get your deposit back after you make on-time payments on your secured card for six months to a year.

Who should get a secured credit card?

  • Students who want to build credit: Students who have no credit history can begin building credit in college with a secured credit card, and doing so only requires a nominal cash deposit that normally starts at around $49 to $200.
  • People with no credit history at all: If you have no credit at all, you may have no choice other than secured credit cards at first.
  • Consumers with bad credit: People who made credit mistakes in the past may have a low credit score now, in which case a secured card can help them build and repair credit over time.
  • Anyone who cannot get approved for an unsecured card: If you simply cannot get approved for an unsecured card of any kind, a secured credit card can help you get access to a credit card with the goal of upgrading later.

What is an Unsecured Credit Card?

An unsecured credit card is a card that offers a line of credit you can borrow against with no collateral required. This is the most common type of credit card you see advertised online and on television, and it’s geared to consumers who have a fair credit score or better (which include FICO scores that start at 580).

Note that many of the best unsecured credit cards require good to excellent credit, however. This means having a FICO score of 670 or higher, or potentially even above 700 for the best cards. Unsecured credit cards also require regular incomes to get approved, and some of the most celebrated cards come with lucrative rewards rates and incredible travel perks to boot.

While there are plenty of unsecured credit cards that don’t charge an annual fee, the top rewards credit cards charge annual fees between $95 and $695. That said, the cards with the highest fees come with luxury travel benefits like airport lounge access and annual travel credits.

Who should get an unsecured credit card?
  • Established credit users who want to earn rewards: If you have decent credit and you want to earn rewards, an array of cash back credit cards are at your disposal.
  • People who want to consolidate high interest debt: Some unsecured credit cards offer 0% APR on purchases, balance transfers or both for a year or longer, and these cards can be a good option for consolidating debt or paying down large purchases over time.
  • Frequent travelers who want perks: Consumers with great credit who want travel perks can look into travel credit cards that offer fee credits for Global Entry or TSA PreCheck, automatic elite status benefits, annual travel credits and other perks.
  • Anyone with good credit: Basically, anyone with good credit who wants to build credit with a credit card should choose unsecured over secured.

Differences Between Secured and Unsecured Credit Cards

The main difference between secured and unsecured credit cards is the fact that secured credit cards require collateral and unsecured cards do not. Unsecured cards also have stricter approval requirements than secured credit cards, meaning they are more difficult to get approved for.

That said, both secured and unsecured credit cards can offer rewards, and both types of cards offer options with no annual fees. All credit cards also have high interest rates, and this is just as true for unsecured credit cards as it is for secured cards. In fact, the average credit card interest rate across all credit accounts assessed interest came in at 22.16% in May of 2023, according to the Federal Reserve.

Secured Credit Cards Unsecured Credit Cards
Require a refundable security deposit Yes No deposit required
Credit required Poor credit or no credit Fair to excellent credit
Earns rewards Possibly More likely
Annual fee required Sometimes Sometimes
High interest rates Sometimes Yes
Credit limits Can be as low as $200 Typically much higher
Credit check required? Not always Always
Get pre-approved online? Often Almost never
Builds Credit Yes Yes

The Bottom Line

Though unsecured credit cards are best since they offer a true line of credit you can borrow against with no collateral requirement, secured credit cards provide an alternative for people who cannot get approved for an unsecured card quite yet. At the end of the day, the right type of credit card for you will depend on where you’re at in your credit journey, and whether you have an established credit history and score.

Fortunately, secured credit cards that require collateral are only made to be used on a temporary basis, so you don’t need to stress if a secured card is all you can get right now. With on-time payments and responsible use, you may be able to upgrade from a secured credit card to an unsecured credit card and get your deposit back in a reasonable amount of time.

Tip: If you’re a college student looking to build your credit, check out the Ambition Card by College Ave to get started.


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