Difference Between Secured and Unsecured Credit Cards

Credit cards seem to be the norm today. According to 2021 statistics, 79% of Americans own at least one credit card. It’s not surprising, considering the convenience and safety offered by this payment method.

Yet, not all credit cards are created the same. There are two main types: unsecured and secured. Do you know which one will serve you better?

We’re here to help you make an informed decision. In this short guide, we’ll discuss:

  • The difference between secured and unsecured credit cards
  • How do they work
  • What requirements and fees apply
  • What are the two solutions best for

Let’s get started!

What Is a Secured Credit Card?

A secured credit card works almost the same as a traditional credit card. You use it to pay for goods and services when you need to.

However, with secured credit cards, you must put down a deposit as collateral in case you default on your payments.

Knowing the pros and cons of secured credit cards will help you decide whether this is the right type of credit card for you.

So, the benefits of a secured credit card include:

  • It can help you establish or reestablish your credit
  • Your deposit is refundable
  • Easier approval
  • Reduced risk of overspending

Although this type of credit card has many pros, there are also some cons. These are:

  • Higher interest rates
  • More fees
  • Providing a security deposit may be challenging
  • Relatively low spending limits

How Do Secured Credit Cards Work?

If drawn by one of the benefits, you probably want to know how secured credit cards work. As mentioned above, they function a lot like their traditional counterparts.

The application process involves providing certain personal details and, in most cases, a review of your credit history. Yet, since the security deposit lessens the risk for the card issuer, the approval is much easier even for people with bad credit.

If you’re approved, you’ll need to pay the security deposit first before you can use your card. The deposit size varies depending on the credit card company and other factors, but it typically covers your spending limit.

If you keep making repayments every month, the card issuer will pay your deposit back in a certain number of months or if you close your account. On the other hand, if you default on payments on your secured card, the company will keep your deposit. Thus, the best way to use a secured credit card is to make one or two small purchases every month. And ensure you pay the balance in full to avoid losing your deposit.

Granted, you’re a responsible cardholder, paying your monthly bills on time, your secured credit card can help you improve your credit score. Reporting your account activity to the credit bureaus, the credit card issuer gives you a chance to improve your standing. A better credit status can help you qualify for loans and potentially go from secured to an unsecured credit card and pay less interest and additional fees.

What Is an Unsecured Credit Card?

Unsecured cards are the most common type of credit. You can use them to make purchases or pay your bills.

They don’t require a security deposit, which is good if you don’t have the money in hand. But depending on the perspective, this could be a drawback, too. Without collateral to back you up, the card issuer will report you to the credit bureaus if you default on payments. This could result in a poor credit score and dealing with debt collectors.

However, some people prefer unsecured credit cards to secured ones. This is mainly because unsecured credit cards have lower interest rates and offer more perks.

How Do Unsecured Credit Cards Work?

An unsecured credit card is a form of revolving credit where you spend up to your card limit. Then you can either pay off the balance on every billing cycle or revolve it to the next month. However, revolving the credit will increase your interest rates. Paying the balance in full won’t cost you extra interest.

Building credit is also possible if you opt for an unsecured credit card, but only if you make repayments every month and try to pay the balance without revolving your credit.

What Is the Difference Between Secured and Unsecured Credit Cards?

Both secured and unsecured cards can help you improve your credit score and assist you financially. But you must know the difference between the two to choose the right option for your needs.

This next section will discuss fees, rewards, and credit score requirements for both secured and unsecured cards.


The secured vs unsecured credit card debate often comes down to fees. How much would each of these plastics cost?

Interest rates vary greatly among credit card companies. But while the national average unsecured credit card APR is 16.28%, secured APRs are around 25%. This makes the former a preferred option for active users. It’s of note, however, that unsecured APR is usually variable, based on the cardholder’s creditworthiness.

On the other hand, most secured credit cards will require a deposit between $200 and $300, paid upfront. Also, they typically involve an annual fee. Naturally, this will depend on the company you choose. For example, Citi Secured Mastercard has a $0 annual fee, while OpenSky’s is $35. But this could go up to $100, whereas most unsecured credit cards don’t have an annual fee. Or if they do, it’s often offset by rewards.


Some unsecured credit cards offer rewards in the form of cashback, points, or miles.

Most cashback cards let you earn a certain percentage of your spending or points that can be converted into a dollar value. Finally, travel credit cards allow you to redeem your rewards for travel-related items and perks, like airline tickets and hotel stays.

To access these rewards, though, you’ll need to change your secured credit card to an unsecured one and have a good credit score.

Minimum credit score requirements

It can be difficult to get approved for an unsecured credit card. You must have a good to excellent credit score between 670 and 850. Some issuers can accept a credit score between 580 and 669, but this will typically not qualify you for the best terms and reward offers.

Secured credit cards are much easier to get. Since you’ll be paying a deposit to secure your credit line, you’re able to get approved for a secured credit card even if you have a bad credit score or none at all. The minimum credit score requirement will depend on the credit card company you choose.

Unsecured vs Secured Credit Card: Side-by-Side Comparison

What’s better than a side-by-side comparison? This secured vs unsecured credit card table will outline the pros and cons of both cards and help you settle upon one of the options.

Unsecured Credit Card Secured Credit Card
May require a credit score of over 670 Available to people with no credit or bad credit scores
May require a set-up fee depending on the credit card company Requires a security deposit as a collateral
Variable APR Higher interest rates
Offers plenty of rewards to cardholders Doesn’t have as many perks
You risk damaging your credit if you revolve your balance Ideal for building credit
It will always require a credit check Some card issuers may not do a credit check
Can offer higher credit limits Can help you avoid overspending
The set-up fee is non-refundable The deposit paid is refundable

Should I Get a Secured Credit Card?

Now that you know more about unsecured vs secured credit cards, it’s safe to say that a secured credit card can be the better option if you:

  • Have low or no credit: This is one of the main benefits of a secured credit card. Since this type of card requires a deposit, you’re less of a risk to credit card issuers. Therefore you’ll easily get approved for this card even if you have low or no credit.
  • Want to build credit: If you keep up with your monthly payments, you can improve your credit score or build credit, as this information will be reported to the credit bureaus. After around six months of responsible use, switching from a secured to an unsecured credit card or qualifying for a loan will be much easier.
  • Need to manage your spending: Of course, you can avoid overspending by working on your self-control and habits. Yet, if you struggle with that, opting for a secured credit card may be a good idea since the smaller credit limit can help you avoid the temptation to spend more than you can afford.

Key Takeaways

The main difference between a secured and an unsecured credit card is that the former requires a security deposit. If used responsibly, both solutions could help you improve your financial status. Yet, if your credit is already damaged or non-existent, your approval odds are much higher with secured credit cards.

On the other hand, if you have an excellent credit score, you can choose an unsecured card to pay less interest and access more rewards.

Simply use this guide to help you decide which credit card type better suits your needs. Regardless of your choice, make sure you shop around for the best credit card company and read the fine print before opening any new line of credit.


Do I get my deposit back from a secured credit card?

Yes, you can get your refund when you’ve paid your balance in full and close your account or switch from your secured credit card to an unsecured one. Yet, if you default on payments, you won’t get your deposit back because it will be used to cover the costs of the payments you didn’t make.

Can you change a secured credit card to unsecured?

Yes, you can switch from a secured credit card to an unsecured one after building up your credit. Most credit card issuers offer this option, so you don’t need to look elsewhere.

What credit score is needed for an unsecured credit card?

Unsecured credit cards usually require a good to an excellent credit score, or between 670 and 850. But some credit card issuers may approve your application if you have a credit score between 580 and 669.

Do unsecured credit cards build credit?

Just like any other credit card, an unsecured credit card can help you build credit, but you’ll have to maintain your card well. You must make payments on time and try not to revolve your credit. Otherwise, your card may even have a negative impact on your credit score.

Are unsecured credit cards better?

An unsecured credit card may be ideal if you want more rewards, lower interest rates, and higher credit limits. But if you seek easy approval and a more secure way to build your credit, then a secured credit card would be the right solution.

Ultimately, knowing the difference between secured and unsecured credit cards will help you decide which card is better for you.


Proudly South African, I have a history in psychology, as well as administration, but writing is my first love. I’ve been a full-time copywriter for four years and create SEO-friendly blogs, case studies, web content, landing pages, reviews, whitepapers, and more. Other than that, I enjoy helping people discover their potential through coaching, taking care of my two darling dogs, and saving the world one charity project at a time.

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