If you are planning to buy credit cards and getting suggestions to buy secured credit cards or unsecured credit cards, with the reasoning that one is helpful to build credit faster. Don’t buy anyone's word without knowing the basics of what's the difference between unsecured and secured credit cards. Firstly equip yourself with all details of secured credit cards vs unsecured credit cards, then start your prosperous credit journey.
Let's dive into the important details of secured credit cards vs unsecured for building credit:
What is a Secured V/s Unsecured Credit Card?
If you are still figuring out “should I get a secured or unsecured credit card”, knowing the fundamentals of secured vs unsecured credit cards will help you.
What is a Secured Credit Card?
One can get a secured credit card after paying a refundable fixed deposit. The deposit you make affects the credit limit on your card, and the typical minimum and maximum security deposit range from $200 to $3,000 for secured cards. A secured credit card is the best option if you don't have a good credit score or are new to credit.
READ MORE: What are secured credit cards?
What is an Unsecured Credit Card?
Unsecured credit cards don't have security deposits that the issuer can keep if you don't pay your debt in full. The alternative for the creditor is to pursue additional collection methods.
If your supplier agrees to take you on as a client, it usually implies they have checked your credit history and have high confidence that you will pay back your payments. Your card issuer will evaluate your ability to repay to calculate your credit limit. Your income and payment history will be considered, among other things. The credit limit they grant you reflects how much they believe you can responsibly borrow.
Pros And Cons of Secured V/s Unsecured Credit Card on Credit Report
A list of pros and cons of secured credit cards vs unsecured for building credit:
For Secured Credit:
Pros:
- When you can't be authorized for a standard credit card, you can frequently get approved for a secured credit card. The credit risk is removed from the credit card issuer by paying the security deposit.
- Your credit can be built or rebuilt using a secured credit card. Paying on time and controlling your balance helps raise your credit score because payments are recorded on your credit report.
- In case you miss a payment, you won't be sent to collections unless your defaulted debt exceeds your deposit. Although the card issuer will keep your deposit, you won't be harassed by debt collectors for late payments on the card. Your credit score will still suffer from late payments, though.
MUST READ: Best Secured Credit Cards to Build Credit
Cons:
- Depending on your chosen card, you could have to pay an application charge, processing fee, or yearly fee to get your secured credit card. The cost of owning the card rises as a result. But you can get a credit card with Azpire free of cost.
- Due to the risk of default, secured credit cards typically don't provide competitive interest rates. Pay down your balance completely each month to avoid paying exorbitant loan fees. The good news is that you can get an Azpire credit card with a0% interest rate.
For Unsecured credit cards:
Pros:
- There is no requirement for a security deposit; they offer a line of credit, and rewards are more common and valuable
- Unsecured Credit cards charge lower interest rates
Cons:
- Unsecured credit cards are more challenging to obtain accepted since banks are more vulnerable to losses and defaults without a security deposit
- Unsecured Credit cards allow you to overspend
- Unsecured Credit Cards are given to people with good credit history
ALSO READ: Secured Credit Cards V/s Prepaid Debit Cards
What is the Difference Between Secured and Unsecured Credit cards?
Here are the key differences between Secured and Unsecured Credit cards:
How to Choose Between Secured and Unsecured Credit cards?
After knowing all the basics, including the difference between secured and unsecured credit cards, here are some expert tips to choose between secured credit cards vs unsecured credit cards:
- If you have poor credit or require establishing credit, a secured credit card can be your best option. Secured cards provide a low approval bar for people who want to restart their credit history. Secured cards provide a structured and deposit-protected foundation for those new to using credit cards
- Suppose you already have a good credit history (scores of 670 or higher). In that case, an unsecured card may provide you more rewards in specific spending areas like dining, petrol, and groceries, as well as credit for Global Entry or TSA PreCheck and extra entertainment features
- Consider other options such as Azpire Credit Builder Card to improve your credit score if you can't pay the $200 security deposit, such as adding yourself as an authorized user to someone else's account, etc
ALSO READ: Partially secured credit cards for bad credit
Rewards on secured cards are infrequent. Secured cards are intended to assist owners in making purchases to establish credit. On the other hand, unsecured credit cards are frequently made to entice customers with various benefits, including cash back, and Z-points or miles for travel. So choose a credit card as per your need and credit history.
Frequently Asked Questions(FAQs)
Is a secured credit card better than an unsecured one for building credit?
Secured credit cards are the best way to build credit, so if you have bad credit or you are new to the credit world, go for the secured credit card. Once you have maintained a good credit score, you can take benefits of the unsecured credit card.
To establish credit, how many secured cards need I to have?
You only need one secured credit card to start rebuilding your credit. However, you might think about getting two later. Applying for many credit cards simultaneously is not a good idea because each application results in a hard credit pull that lowers your credit score.
Which credit card builds credit faster, secured or unsecured?
Using a secured credit card responsibly is one of the simplest and fastest ways to establish credit. Regularly use the card, but don't use the total amount. Maintain a balance that is less than 30% of your credit limit. Even better is avoiding exceeding 10%.
On a $200 credit card, what should I spend?
A reasonable rule is not to spend more than 30% of your credit limit to keep your credit utilization low. e.g., Don't carry an amount higher than $60 on a card with a $200 credit limit.
Should I get a secured or unsecured credit card?
The answer totally depends on your needs and credit score. If you are a newbie to credit cards, or someone with a bad credit score, opting for a secured credit card would be an easy and wise decision. So many options are available for this; you can get a free-of-cost credit card at Azpire and can start building your credit score. If you have a good credit score, you should opt for an unsecured credit card.
