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When you're new to credit, choosing the right type of credit card is crucial. Two common options are secured and unsecured credit cards. Each type has distinct features that may impact your ability to manage credit and build a strong financial profile. The decision between a secured and an unsecured credit card depends on your financial situation, your credit history, and your personal preferences.
Credit cards are a popular and convenient way to manage expenses, especially for larger purchases. They also help build your credit score when used responsibly. But not all credit cards are the same. Broadly, credit cards fall into two categories:
Secured
Unsecured
Both types provide the same basic functionality, such as enabling purchases and offering a credit limit. However, there are key differences in how they work and the requirements to qualify for them. Understanding these secured vs unsecured credit card differences is crucial before applying, especially if you’re a first-time applicant with little or no credit history
A secured credit card is a type of credit card that requires you to provide a security deposit. This deposit acts as collateral for the credit limit and ensures that the card issuer is protected if you are unable to make payments. For example, if you deposit ₹20,000, your credit limit will likely be ₹20,000.
Secured credit cards are generally more accessible for individuals with no credit history or those looking to rebuild their credit score. They provide a valuable opportunity to demonstrate your ability to manage credit. However, keep in mind that your deposit is usually tied up for the duration of your credit card usage.
One benefit of secured cards is that they are less risky for lenders, which makes it easier for fresh applicants to be approved. After some time of responsible usage, you might even be able to upgrade your secured card to an unsecured one.
An unsecured credit card, unlike a secured one, does not require any upfront deposit. Instead, the lender determines your credit limit based on factors like your income, credit score, and creditworthiness. These cards are typically the go-to option for individuals with an established credit history.
For a fresh applicant, getting approved for an unsecured credit card can be more challenging, especially if you don’t have a credit score or if your score is low. However, unsecured cards often offer more flexibility in terms of rewards, lower interest rates, and better benefits compared to secured cards.
If you're confident in your ability to manage credit, or if you've already built a positive financial track record, an unsecured credit card could be a suitable choice. But if you’re new to credit, a secured card might be a safer starting point until you gain more experience.
When deciding between a secured and unsecured credit card, it's important to understand their key differences. Compare credit card offers to find the right one for you.
Here's a quick comparison to help clarify:
Key Factor |
Secured Credit Card |
Unsecured Credit Card |
|---|---|---|
Security Deposit |
Requires an upfront deposit that acts as your credit limit. Refundable if the account is closed in good standing. |
No deposit required. Credit limit based on income and credit score. |
Eligibility |
Easier to obtain, especially for those with no credit history or a low credit score. Good for fresh applicants. |
Requires a good credit score or proven credit history, making it harder for fresh applicants. |
Credit Limit |
The credit limit is usually equal to the amount of the deposit. |
Credit limit determined by financial standing and creditworthiness, varying greatly. |
Interest Rates and Fees |
Often has higher interest rates, but fees tend to be lower compared to unsecured cards. |
Can offer lower interest rates and benefits, but may have higher fees in some cases. |
Building Credit |
Great for building or rebuilding credit. Payments are reported to credit bureaus. |
Helps build credit, but requires a decent credit score to qualify. |
Disclaimer: The details may vary as per the issuer. Always review the terms and conditions provided by your card issuer before making a decision.
If you're new to credit or have a limited credit history, a secured credit card can be a practical starting point. Secured credit cards offer a controlled way to build credit. It provides a safe way to begin building your credit without the risk of accumulating too much debt.
Here’s when a secured card might be the right choice for you:
No Credit History
If you're just starting out and have no previous credit history, a secured credit card is often the easiest way to get approved
Low Credit Score
If your credit score is low, a secured card can give you the opportunity to rebuild your credit score by demonstrating responsible usage
Limited Financial History
Even if you have a financial history, but haven't used credit cards before, a secured card offers a controlled way to prove your ability to manage credit
Lower Risk
Secured cards allow you to start slow. The security deposit acts as a buffer for both you and the issuer, which makes the card less risky for both parties.
A secured card is ideal if you need to establish or improve your credit standing, without worrying too much about getting rejected or facing higher risks.
An unsecured credit card is a better choice if you already have some credit history and want more benefits and flexibility.
Here’s when you might consider applying for one:
Good Credit History
If you already have a good or fair credit score, you may be eligible for an unsecured credit card without needing a deposit
Looking for Rewards
Unsecured cards often come with attractive rewards, such as cashback, travel points, or discounts on select purchases. If you can manage credit well, this can be a great way to benefit from your spending.
Higher Credit Limit
Unsecured cards can offer a higher credit limit compared to secured cards, which is helpful if you plan on making larger purchases
Better Benefits
Unsecured cards typically offer additional perks such as lower interest rates, longer grace periods, and various exclusive offers
If you’re confident in your ability to handle credit responsibly, or you’ve already established some credit history, an unsecured credit card could be a great fit.
Here are some of the most popular credit card options for you as a beginner:
Credit Card |
Joining Fee |
Benefits |
|---|---|---|
Axis Bank MY ZONE Credit Card |
₹500 |
|
SimplySAVE SBI Credit Card |
₹499 + GST |
|
ICICI Bank Coral Credit Card |
₹500 |
|
MakeMyTrip ICICI Bank Platinum Credit Card |
₹500 |
|
Axis Bank NEO Credit Card |
₹250 |
|
Disclaimer: The fees and benefits for these credit cards are subject to change at the issuer’s discretion. Check the issuer’s official website before applying.
Yes, many banks allow you to convert your secured credit card into an unsecured one after demonstrating responsible usage over time. This usually depends on your payment history, credit score, and the duration for which you've held the secured card. Some banks may also require you to apply for the conversion.
Yes, using a secured credit card responsibly can help improve your credit score. Since your payment history is reported to credit bureaus, timely payments will reflect positively on your credit report, allowing you to build or rebuild your credit over time.
Yes, income proof is typically required when applying for an unsecured credit card. Banks assess your income to determine your creditworthiness and set a suitable credit limit. Common documents include salary slips, bank statements, or income tax returns.
Secured credit cards are generally easier to obtain compared to unsecured credit cards, especially for fresh applicants with little or no credit history. Since a secured card requires a security deposit, it poses less risk to the issuer, making approval more likely.
No, not all banks offer secured credit cards. While many major banks and financial institutions provide secured credit cards, availability can vary. It’s important to check with individual banks to see if they offer this type of card.
You can determine whether your credit card is secured or unsecured by checking your card's terms and conditions or your account statement. If you had to make a security deposit at the time of application, it’s a secured credit card. If there was no deposit, it's an unsecured card.
Unsecured credit cards can help build credit, but the speed of improvement depends on factors like your spending habits, payment history, and credit utilisation ratio. With responsible usage, you may see quicker credit score improvements compared to a secured card, as there is no deposit tying up your funds.
Yes, a secured card can help raise your credit score if used responsibly. Since the credit limit is secured by your deposit, it’s a lower-risk option for issuers, and timely payments can help improve your score. However, make sure you keep your balance low and make payments on time.
While secured cards are helpful for building or rebuilding credit, they come with a few drawbacks:
Deposit Requirement: The need for an upfront deposit can tie up your funds
Higher Fees: Secured cards often have higher fees and interest rates
Limited Benefits: Secured cards may not offer the same rewards or benefits as unsecured cards
Temporary Credit Limit: Your credit limit is often equal to your deposit, which may limit your purchasing power
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