Secured vs Unsecured Credit Cards

When it comes to types of credit cards out there, there are two types of credit cards, secured and unsecured. For the unsuspecting cashier or onlookers, they act exactly the same, so what is the difference between the two?

Secured Credit Card 

The way secured credit cards work is they require a deposit. Your credit limit is tied to the deposit that was given to the bank. Secured cards are typically reserved for people with either new or rebuilder status credit. If the secured card user is not able to, or decides not to pay the card, the bank does not lose any money because of the deposit that was given initially.

Depending on the card issuer and the responsibility of the secured card user, a secured card can “graduate” into an unsecured card. If this happens, the deposit is returned in full. 

Unsecured Credit Card

Unsecured cards do not require a deposit. Instead, the credit limit is tied to a few factors involving credit worthiness, income, and the relationship with the bank. If the cardholder decides not to, or is not able to pay the card, the bank is on the hook for the lost money. 

The best way to think about unsecured credit cards is that it’s an unsecured loan. You don’t have to have the money upfront for the card, but you do have to pay it back. 

Final Thoughts

Again, the only person that knows a card is secured or not are you and your bank. Sometimes building or even rebuilding credit involves a secured card, but if you have them, that’s alright. Just be as responsible as you can, and you’ll soon graduate the card, or be able to apply and get approved for the unsecured credit cards. 


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