Choosing the right credit card can significantly impact your financial future. It would be best if you understood the fundamental differences between a secured and an unsecured credit card. Here, we will discuss the difference between each type of credit card and suggest which one is right for you.
What is a Secured Credit Card?
A secured credit card is a credit card where the user receives a credit limit in the exact amount they offer as collateral. For instance, if you offer $1,000 as collateral, you will have a $1,000 line of credit on the card.
You Should Get a Secured Credit Card If…
You have no credit
If you have no credit, you may only be able to get a secured credit card. There is usually no background check. Apply then provide the collateral, and you are approved.
You have poor credit.
For those with a credit score below 600, a secured credit card is a great way to build credit. After a year or two of on-time payments, you will be able to boost your credit score to a level where you can apply for an unsecured credit card, or your credit card companies may offer to upgrade you to an unsecured card.
You want to avoid debt.
If you want to avoid debt, a secured credit card is an excellent way to avoid spending more than you can put up as collateral.
What is an Unsecured Credit Card?
An unsecured credit card is a traditional card where a bank extends a line of credit to you based on your credit score.
To get approved for an unsecured credit card, you will need to have at least fair credit. If you have excellent credit, then you can get an unsecured credit card at a competitive interest rate.
You Should Get an Unsecured Credit Card If…
You have good credit.
Your chances of being approved for an unsecured credit card are higher if you have a credit score of 620 or higher.
You want more features and perks.
Unsecured credit cards come with many perks, such as cashback offers, discounts, frequent flier miles, and more.
You want a higher credit limit.
If you are looking for a higher credit limit, you will need to apply for certain unsecured credit cards.
Finding the Right Credit Card for You
Be sure to carefully consider the pros and cons of secured and unsecured credit cards before applying. No matter which type of credit card you choose, remember that making on-time payments is crucial. A credit card can be an excellent resource with proper spending and payment habits.