[Guide] – Secured vs Unsecured Credit Card
Is it your first time applying for a credit card? Or are you trying to mend and repair your credit history? Well, whatever the reason may be, there’s a good chance that you will come across the terms like “secured credit cards” and “unsecured credit cards”. But what do they mean? And what’s the difference between the two? Let’s know more about secured vs unsecured credit card through this guide.
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Secured vs Unsecured Credit Card
Secured Credit Card
A secured credit card is supported by a refundable cash deposit, which has to be submitted beforehand. In most cases, the amount deposited while initiating the process is the credit limit. With the issuer’s permission, you can add money to the deposit amount to increase your credit limit. Moreover, if you show a good payment history and not delay current payments, the issuer may increase the credit limit. Do you know How To Get A Credit Card Limit Increased For Chase Bank?
Unsecured Credit Card
On the contrary, an unsecured credit card does not require any collateral of some sort. When initiating an unsecured credit card, the lender decides your credit limit after assessing your credit risk using general factors like credit reports, credit score, payment history and any related agent indication your ability to pay. Do you know How To Improve Credit Score Immediately?
How does secured credit card work?
Before the account is opened, the applicant submits a refundable security deposit. The issuer holds on to the money and uses it if the cardholder repeatedly fails to pay the monthly bills (known as defaulting). Btw Have You Ever Wondered How A Credit Card Works?
Just like with other credit cards, secured cardholders receive a statement every month and must make the payment before the due date. Most of the secured cards come with a grace period that enables cardholders to avoid interest charges by paying off their balance in full.
However, secured cardholders can opt to carry-forward a balance and incur interest charges. This doesn’t mean that the issuer will use the security deposit to cover the monthly payments. The issuer will use the deposit only as a last resort if the applicant repeatedly default on their payments. At the time of closing the account or cancelling the credit card, the security deposit is returned only when the full balance is paid.
Which one to pick?
If you are struggling with your finances and wish to rebuild your credit, secured credit card may seem a better option. If you need short term loans, then check out LendUp Reviews. The following reasons go in the favor of secured credit card.
- As the deposit amount you make for a secured card is your limit, it will teach you to live within your boundaries. This means you can avoid falling into debt and build your credit better.
- Using a secured credit card will make you use your credit smartly.
- It is also a great option to take your first steps into the world of credit.
- If you have a bad credit score, an unsecured card will carry high fees and interest rates and none of them is useful to build a credit.