Secured Credit Card vs. Unsecured Credit Card: Which Is Right for You?

A secured credit card is a type of card designed for people with thin credit, no credit, or poor credit. It requires a cash deposit to open, which acts as collateral and typically determines your credit limit. If you deposit $200, for example, you may have a $200 credit line.

Here’s how a secured credit card works:

• You apply for a secured credit card and make a cash deposit with the credit card company.
• Once approved, you can use your card to make purchases, up to your credit limit.
• You can pay your balance in full each month, or just pay the minimum due. If you only pay the minimum, you’ll accrue interest charges.
• The credit card company reports your account details to the credit bureaus, helping you build your credit score.

A secured credit card has an annual percentage rate (APR), which is your cost to borrow. The APR kicks in when you carry a balance from month to month. A card with a 27% APR can cost you more than one with a 22% APR.

Your card may charge an annual fee or other fees like late fees. Some secured cards let you earn rewards on purchases.

If you make on-time payments, you should see your credit score improve over time. Eventually, you may be able to graduate from a secured credit card to an unsecured credit card.

Unsecured credit cards don’t require any collateral or deposit to open, but they have higher credit score requirements than secured cards. Some target people with fair or good credit, while others require excellent credit.

Here are a few other features that make unsecured cards different:

• Credit limits: Typically higher than secured cards, based on your creditworthiness
• Rewards: Often more generous with cash back, points, or travel perks
• Fees: Vary by card – some have annual fees, others don’t

Your credit situation and financial goals determine which card type fits you best. Here’s a quick comparison:

Secured cards can be a good fit if you’re building credit for the first time or don’t qualify for unsecured cards yet. They let you establish a positive payment history without the risk of going into debt.

Unsecured cards may be better if you have sufficient credit to qualify and can spend responsibly. Aim to pay off your balance in full each month so you can earn rewards without racking up interest charges.

Building credit works the same way with both card types. FICO® credit scores – used by 90% of top lenders – are calculated based on five factors:

• Payment history: 35%
• Credit utilization (30%)
• Credit age (15%)
• Credit mix (10%)
• New credit (10%)

The lowest FICO score you can have is 300 and the highest is 850. How you build credit with either a secured or an unsecured card is to use it in ways that have a positive impact on the factors listed above.

How to improve your credit score

Whether you’re new to credit or rebuilding your score, these strategies can help:

• Pay on time: Never miss a due date – payment history is 35% of your score
• Keep utilization low: Use less than 30% of your credit limit when possible
• Use your card regularly: Make at least one small purchase each month and pay it off in full
• Limit new applications: Each credit application that involves a hard credit inquiry can temporarily lower your score

Good credit can take time to build, but if you consistently practice these habits with your card, you can eventually start to see your hard work pay off.

You have two main paths to upgrade from a secured to an unsecured card:

• Spend a few months building a positive account history with your current card issuer and request an upgrade.
• Build positive credit history with your current card, then apply for a new unsecured card

The first route may be fastest if your card issuer reviews accounts for upgrades. You may qualify after six months of on-time payments, and your deposit would be refunded.

If your issuer doesn’t offer upgrades, you can apply for unsecured cards from other companies. Look for a card that:

• Matches your credit level: Fair, good, or excellent credit requirements
• Offers valuable benefits: Rewards, perks, or features you’ll actually use
• Has reasonable costs: Low APR and minimal fees

Take your time choosing the right card instead of applying for multiple options. Each application adds a hard inquiry to your credit reports, which can temporarily lower your score.

Secured cards work well when you’re starting from scratch or rebuilding credit. Unsecured cards offer more rewards and benefits once you’ve established credit history.

Whichever card type you choose, focus on building good habits: pay on time, keep balances low, and use your card regularly. Learn more about the best cards for building credit when you’re ready to apply.