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Understanding Secured and Unsecured Credit Cards
Team PaisaSimple • June 23, 2024
Credit cards are financial tools that aid in building your credit history. Understanding secured and unsecured credit cards is essential in picking a card that’s right for you.
Credit cards are financial tools that aid in building your credit history. Understanding secured and unsecured credit cards is essential in picking a card that’s right for you.
A credit card has become a vital financial tool. When used reasonably, it can be a real asset. However, if you’re someone without a credit history or with a bad credit score, finding a credit card issuer can be a real task.
Fortunately, you can qualify for a secured credit card despite your poor financial history. This card is a life vest if you often face rejection from credit card issuers.
This PaisaSimple blog helps you understand secured and unsecured credit cards. So, let’s look at what they are, their merits, the differences between them, and which kind of card is your best option.
What’s a Secured Credit Card?
For obtaining a secured credit card, you are urged to make a deposit as security or collateral at the lending institution. Generally, banks issue these cards against a fixed deposit. The minimum FD amount depends on the bank.
Merits of a Secured Credit Card
- It helps build your credit history from scratch or rebuild a poor one.
- Opening an FD in a bank will usually assist you in obtaining a secured credit card. The documents you’ve submitted for the FD will hold good for your credit card.
- Typically, these cards come with little to no annual charges.
- Responsible usage will improve your creditworthiness and present an opportunity to apply for an unsecured credit card.
What’s an Unsecured Credit Card?
In contrast, an unsecured credit card is issued by a bank without a collateral or security deposit. Your credit score, credit history, and salary determine if and what type of credit card you qualify for. Unsecured credit cards are the most common type out there and come with many rewards and benefits.
Merits of an Unsecured Credit Card
- You receive cashback, rewards, and offers on your expenditures.
- These cards do not need a security deposit and are issued based on your creditworthiness.
- With responsible usage, you can build on a good existing credit history and increase your credit limit.
- You get to meet larger expenses with a bigger credit limit compared to secured credit cards.
Differences Between Secured and Unsecured Credit Cards
| Criteria | Secured CC | Unsecured CC |
|---|---|---|
| Security deposit/collateral | Requires a deposit in the form of an FD | No collateral needed. Your application is approved based on creditworthiness |
| Credit Limit | Equal to or lower than the deposit amount | Determined by credit history and credit score |
| Interest rate | Lower interest rate because of collateral | Higher interest rate |
| Availability | Issued for those with zero or low credit history | Issued for those with good credit history and credit score |
| Rewards | Offered by select credit cards | Offered by most credit cards |
Which Card Do I Choose?
Choosing between the two types boils down to your situation. Secured cards are the best option for people who don’t meet the requirements of unsecured cards.
It finally comes down to your eligibility and requirements. If you have a good credit score and a history of repaying debt on time, get an unsecured credit card. However, if you’re just setting off on your financial journey or have a poor credit history, get a secured credit card.
Bear in mind that you can always use a secured credit card to enhance your credit score and get your credit history back on track. Good financial decisions are what matters when building a good credit history.
Frequently Asked Questions
Between secured and unsecured credit cards, which is better for a student?
Can I build creditworthiness with a secured credit card?
Can I progress from a secured to an unsecured credit card?