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What is the Difference Between Secured and Unsecured Credit Cards?

If you have tried getting a ‘usual’ credit card, you may be aware that there are many different types of cards you can choose from. Among these are secured and unsecured credit cards. Before you decide between these two options, you need to understand the key points of difference between secured and unsecured credit cards. Let us begin by decoding what they are.

1. Unsecured Credit Cards

An unsecured credit card is a form of voluntary debt provided by a bank or a financial institution without the need to offer up any assets as collateral to the card issuer. In other words, you do not have to secure the debt taken with your house, your car or any jewelery. You can use the credit card to pay for big-ticket purchases or even regular expenses without actually spending any money out of pocket. 


Thereafter, you need to repay this amount within the due date specified by the card issued. In case you fail to do so, the card issuer will levy interest on the amount remaining unpaid. Since an unsecured credit card has no collateral, the risk is fairly high for the card issuer. So, the rates of interest on unpaid amounts are significantly steep, coming in at around 3-4% per month (or 36-48% annually).

2. Secured Credit Cards

A secured credit card, on the other hand, works pretty much like an unsecured card. However, the main difference between secured and unsecured credit cards is the collateral. Secured cards are typically backed by a deposit that you make with the bank or financial institution issuing the card. This deposit lowers the risk for the card issuer, and in case you fail to pay your dues, they can recover the funds from your deposit. Secured credit cards are generally a good option if you have a low credit score or if you have no credit history. 

3. What is the Difference Between Secured and Unsecured Credit Cards

Now that you know what they mean, you may be curious to find out more about how these two kinds of credit cards differ from one another. Here is a detailed comparison exploring secured vs unsecured credit cards and how they differ from one another. 

  • Need for Collateral

Secured credit cards require collateral in the form of a deposit, whereas unsecured credit cards need no collateral of any kind. 

  • Checks Conducted

If you apply for a secured credit card, there are not many checks conducted by the issuer. On the other hand, for an unsecured credit card, the issuer checks various aspects like your income levels, nature of the occupation, employer profile and more.

  • Time Taken for Issue

A secured credit card is generally issued extremely quickly since you will already have a deposit with the card issuer. On the other hand, the issue of an unsecured card involves several layers of verification, due to which it takes slightly longer.

  • Interest Rates

Another key point of difference between secured and unsecured credit cards is the rate of interest levied on delayed payments. Unsecured cards typically carry lower rates of interest than secured cards. 

  • Credit Limit

In the case of a secured credit card, the credit card limit is assigned as a percentage of the amount in the deposit. It is usually around 80% of the deposited amount, but it can also be 100% in some cases. On the other hand, the credit limit on an unsecured credit card depends on your credit profile. The higher your credit score, the higher the limit on the credit card.

  • Credit Card Offers

While we’re comparing secured vs unsecured credit cards, the offers on the cards are another key point of comparison. ,Both types of credit cards come with offers on usage, but unsecured credit cards tend to have better offers than the secured kind. 

In Conclusion

This sums up the key differences between secured and unsecured credit cards. If you are a student or a person with no credit history, or if your credit score is really low (below 750), a secured credit card could be the wiser choice. On the contrary, if you do not have a tendency to overspend, if your credit score is over 750, and if you do not have any deposit to use as collateral, consider getting an unsecured credit card.

Frequently Asked Questions (FAQs)

Should I get a secured credit card or an unsecured credit card?

That depends entirely on your financial status and your financial requirements. If you have a good credit score, an unsecured card may be more suitable. But if you have no credit history or if your credit score is below 750, a secured card may be better, provided you have a deposit with the card issuer.

What are the drawbacks of getting a secured credit card?

The rate of interest on a secured credit card is usually higher than the interest rate on an unsecured card. Also, in case you do not pay your credit card bill on time, you risk losing your deposit wholly or partially.

Do secured cards build credit?

Yes, secured credit cards do help you build your credit history and improve your credit score. You can enjoy this benefit as long as you pay your credit card dues on time.

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