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

Key takeaways

• Traditional secured credit cards generally require a refundable cash deposit that typically determines your credit limit. The Chime Visa^® Credit Card (“Chime Card”) has no minimum security deposit^CC41 requirement to open, but you must fund your secured account before using the card.

• Unsecured credit cards don't require a deposit, but they usually have higher credit score requirements.

• Both card types can help you build credit when you make on-time payments and keep balances low.

• You may be able to graduate from a secured card to an unsecured card after building a positive payment history.

If you're building credit for the first time or rebuilding after a setback, you may be weighing a secured vs. unsecured credit card. Understanding the difference between the two can help you choose the right option for your situation. Below, you'll learn how each card works, how the two compare, and how to move from a secured card to an unsecured one.

Secured vs. unsecured credit cards: The key difference

Traditional secured credit cards generally require a refundable cash deposit, while unsecured credit cards don’t. The deposit acts as collateral that the issuer can use to cover unpaid balances, and it typically determines your credit limit. Chime Card works differently: There’s no minimum security deposit (see disclosure 1) ¹ required to open, but you must add money to your secured account before using the card. The amount you add determines how much you can spend.

Secured cards often suit people who are new to credit or rebuilding it. Unsecured cards often suit people with an established credit history who can qualify based on their creditworthiness.

To move from a secured card to an unsecured card, build a history of on-time payments first. Next, ask your card issuer about an upgrade review or apply for a new unsecured card. Experian^®, a credit bureau that compiles credit reports, says many issuers review secured accounts after six to 12 months.

What is a secured credit card?

A secured credit card can work well for people with thin credit, no credit, or poor credit. Traditional secured cards generally require a refundable cash deposit to open. This deposit acts as collateral and typically determines your credit limit.

Traditional secured-card deposits typically start at $200, although requirements vary by issuer. A $200 deposit, for example, may give you a $200 credit line. Chime Card has no minimum security deposit (see disclosure 1) ¹ requirement to open, but you must fund your secured account before using the card. The amount you add determines how much you can spend.

Here's how a traditional secured credit card typically works:

• You apply for a secured credit card and make a cash deposit with the credit card company.

• Once the card issuer approves you, you can use your card to make purchases, up to your credit limit.

• With a traditional secured credit card that charges interest, you can pay your balance in full each month or pay at least the minimum due. If you carry a balance, interest charges generally apply. 

• The credit card company typically reports your account details to the credit bureaus, which can help you build credit history.

Traditional secured credit cards often charge an annual percentage rate, or APR, on balances you carry from month to month. For example, carrying the same balance on a card with a 27% APR generally costs more than on one with a 22% APR. Chime Card works differently: It does not charge interest. (see disclosure 2) ²

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

On-time payments can help build positive credit history and may positively impact your credit score over time. Late payment may negatively impact your score. Eventually, you may be able to graduate from a secured credit card to an unsecured credit card.

What is an unsecured credit card?

Unsecured credit cards don't require any collateral or deposit to open, but they usually 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: Often a higher credit limit 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

Secured vs. unsecured credit cards compared

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

Secured cards may 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 if you make on-time monthly payments while your deposit caps how much you can borrow.

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.

Pros and cons of each card type

Each card type comes with trade-offs. Here's how they stack up:

• Secured card pros: Often easier to qualify for with limited credit, and your deposit is typically refundable

• Secured card cons: Traditional secured cards generally require an upfront deposit and often have lower limits and fewer rewards.

• Unsecured card pros: Requires no deposit and often comes with higher limits and more rewards

• Unsecured card cons: Has stricter approval requirements and a higher limit that can make it easier to carry debt

Building credit with a secured credit card vs. an unsecured credit card

Building credit works the same way with both card types. FICO^® says 90% of top lenders use FICO credit scores. FICO calculates its scores based on five factors, though their importance may vary from person to person:

• Payment history: 35%

• Amounts owed: 30%

• Length of credit history: 15%

• New credit: 10%

• Credit mix: 10%

Many credit scores range from 300 to 850. How you build credit with either card type comes down to using it in ways that positively affect these factors.

How to improve your credit score

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

• Pay on time: On-time payments can help build positive credit history, and late payment may negatively impact your score

• Keep utilization low: Your credit utilization is the share of your limit you use, and experts advise keeping it at 30% or less

• Use your card regularly: Make at least one small purchase each month and pay it off in full

• Limit new applications: When a lender checks your credit for an application, that hard inquiry may temporarily lower your score

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

How to upgrade a secured credit card to an unsecured credit card

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 several months of on-time payments, and the issuer typically refunds your deposit if it approves the upgrade.

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. A credit application may result in a hard inquiry, which may temporarily lower your credit score.

Choose the card that fits your credit journey

Secured cards can work well when you're starting from scratch or rebuilding credit. Unsecured cards often 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. The Chime Card is a secured credit card that can help you build credit history with on-time payments. (see disclosure 3) ³

When you're ready to apply, compare the best cards for building credit to find one that fits your goals.