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If you have fair or poor credit, or no credit at all, getting a credit card can be like climbing a very tall and slippery mountain. Traditional credit cards—the ones offering low rates, sign-up bonuses, and cash-back rewards—aren’t available. But that doesn’t mean you have no options. Secured and unsecured credit cards are designed specifically for those with less-than-perfect credit.
What’s the difference between the two, and which card type will work best for you? Let’s take a deep dive into secured vs. unsecured credit cards to answer those questions.
What is a secured credit card?
A secured credit card is any credit card that requires you to post a security deposit. Whenever you make a purchase with the card, your deposit acts as collateral; if you fail to make payments on time or default on your debt, the lender can use your deposit to reimburse itself.
With most secured cards, your security deposit will determine the size of your credit limit. For example, a $1,000 security deposit will provide a $1,000 credit limit. Many secured card issuers allow you to increase your credit limit simply by adding funds to your security deposit.
A secured card is often the best option for consumers with bad or limited credit to get a credit card. Since the account is fully secured, the lender has little risk and is more likely to approve the card. Secured credit cards also come with lower fees than unsecured credit cards for bad credit.
Once your secured credit card is issued, you use it like a traditional credit card. As you make monthly payments, the card issuer may report your payment history to the major credit bureaus—Experian, Equifax, and TransUnion—in which case, your credit score should begin to rise.
Examples of secured credit cards
There are plenty of options in this category since many banks and credit unions offer secured cards. Here are three of the best:
card_name
Capital One Platinum Secured Credit Card
Capital One Platinum Secured Credit Card
Security deposit/credit limit:
card_name offers a unique security deposit arrangement. Though the minimum credit line is $200, you may be required to submit a security deposit of only $49 or $99 to obtain that credit line (or you may be required to provide the full $200). The security deposit is fully refundable. By making payments on time, you can earn back your security deposit and even upgrade to a standard, unsecured Platinum card. You’ll even be automatically evaluated for a higher credit line in as little as six months.
Capital One reports your payment history to all three major credit bureaus, and you can monitor your credit with CreditWise from Capital One. There are no foreign transaction fees, the card comes with $0 fraud liability protection from unauthorized charges, and you can set security alerts to monitor potential suspicious transactions.
card_name
Chime Secured Credit Builder Visa® Credit Card
Chime Secured Credit Builder Visa® Credit Card
Security deposit/credit limit:
card_name offers a different kind of secured credit card. Rather than putting up a security deposit, your credit card limit is established by the amount you transfer from your linked Chime Checking account.
For that reason, you must have a Chime Checking account to be eligible for the credit card, and the account must have qualifying direct deposits of at least $200 per month. You can move any amount of cash from your checking account to your credit card to establish your credit limit.
This card offers many advantages beyond the lack of a security deposit. Chime does not run a credit check, so the card is open to all credit levels. Meanwhile, there is no annual fee and no interest charged. Chime reports your payment history to all three major credit bureaus. And since there is no preset credit limit, your card won’t negatively impact your credit utilization ratio.
card_name
Merrick Bank Secured Credit Card
Merrick Bank Secured Credit Card
Security deposit/credit limit:
card_name is available to consumers at all credit levels. The card comes with a modest reg_apr,reg_apr_type, and a low (for credit cards with bad credit) annual fee. Since it’s a secured card, it offers a generous maximum credit limit of up to $3,000. Merrick Bank reports your payment history to all three major credit bureaus. Your free FICO Score will be available each month so you can track your progress.
One of the big benefits of the card_name is that your credit limit may be increased without the requirement for you to put up additional funds for a larger security deposit. Your credit limit will be reviewed periodically for potential increases. Otherwise, your security deposit will be returned to you once your account is closed and paid in full.
What is an unsecured credit card?
An unsecured credit card is one that does not require a security deposit or any other type of collateral. Your eligibility is determined by a combination of your credit history, income, and other financial obligations.
Traditional credit cards are unsecured. Some lenders offer unsecured credit cards for consumers with bad credit. For those cards, credit limits are typically low, set at no more than a few hundred dollars. The interest rates and fees can be high since the lender is taking a risk providing an unsecured card to a person with a low or even nonexistent credit score.
Once issued, an unsecured credit card for bad credit can be used in the same way as a traditional credit card. And as you make your on-time monthly payments, your credit score should begin to increase. Eventually, you may be able to apply for traditional credit cards.
Examples of unsecured credit cards
There are several good cards in this category, if bad credit is preventing you from getting a traditional credit card. Below, three of the best unsecured credit cards:
card_name
PetalR 1 No Annual Fee VisaR Credit Card
PetalR 1 No Annual Fee VisaR Credit Card
Security deposit/credit limit:
card_name may very well be the top unsecured credit card. It accepts all types of credit and doesn’t require a credit check for qualification. Your payment history is reported to all three major credit bureaus. In addition, you may be eligible for a credit line as high as $5,000.
Not only does the card come with no annual fee, but you also can earn cash back, ranging between 2% and 10% of purchases at select local and national merchants. There are no foreign transaction fees, and you may be eligible for credit line increases simply by connecting your bank account for evaluation by the card issuer.
card_name
Capital One QuicksilverOne Cash Rewards Credit Card
Capital One QuicksilverOne Cash Rewards Credit Card
Security deposit/credit limit:
card_name is designed primarily for consumers with less-than-perfect credit, so you may not be eligible if you fall in the bad or poor categories. But if you can qualify, you can earn unlimited cash-back rewards of 1.5% on gasoline, groceries, and all other purchases. And you can earn unlimited 5% rewards if you book hotels and rental cars through Capital One Travel. Rewards can be redeemed for either a statement credit or by check mailed to you.
You may be eligible for an increased credit limit by making on-time payments for as few as six months. You can also monitor your credit through CreditWise from Capital One to track your progress in improving your credit score.
Secured vs. unsecured credit cards
The table below provides a side-by-side comparison between secured and unsecured credit cards. You’ll generally pay less interest and a lower annual fee with a secured card, but you will be required to post a security deposit. If you don’t have the funds for a security deposit, applying for an unsecured credit card will be your best option.
| Feature | Secured | Unsecured |
|---|---|---|
Average APR | 0% to 30.49% | 24.9% to 34.49% |
Minimum credit score to qualify | No minimum to 669 | No minimum to 669 |
Annual fee charged? | $0 to $36 | $0 to $99 |
Deposit required? | Yes | No |
Helps you build credit | Yes | Yes |
Perks (Example: rewards) | Convert to a traditional, unsecured credit card | Cash back rewards on some cards |
How to apply for a secured card
You can apply for a secured credit card directly from the card issuer’s website. You’ll need to provide standard information—including your name, date of birth, Social Security number, home address, email, and phone number. The application will also request income information.
Not all secured card issuers will run your credit report, but most will. Though they may not decide based on your credit score, they will be looking for major derogatory information, like recent bankruptcies or tax liens. Either of those events could disqualify you for a card.
If approved, you’ll need to follow the procedures for providing the security deposit. Some issuers will require you to link a bank account, while others will accept a check or a wire transfer.
Your card should arrive within two or three weeks, after which you can use it the way you would a traditional credit card.
How to upgrade an unsecured card
The first step is to choose a secured credit card that offers the option to transition to an unsecured card—not all secured cards do. Once approved, make all payments on time.
Credit card issuers that provide this option will generally review your account for a transition to an unsecured card after as few as six on-time payments. Other cards require you to apply for an unsecured card after a minimum timeframe.
Building credit with a secured card vs. unsecured card
The credit-building process works the same whether you are using a secure card or an unsecured one. If your card issuer is reporting your payment history to all three major credit bureaus, your on-time payments should gradually increase your credit score.
The process does take time. It may require several months of on-time payments before you begin to see improvement in your credit score. And if your score was low to begin with, it may take a year or more before you’ll see the type of improvement that will enable you to apply for traditional credit cards.
TIME Stamp: Both secured and unsecured credit cards can help you build or rebuild your credit
Secured and unsecured credit cards work much the same way. Though it may be ideal to get an unsecured credit card, relieving you of the need to post a security deposit, you will pay higher fees and get a lower credit limit. This is a good choice if you don’t have funds for the security deposit.
But if you can make a security deposit, you’ll get a lower-cost credit card and a credit limit as large as the deposit you are able to make.
Either type of card is a valuable tool if you’re looking to build or rebuild your credit, to eventually be able to get approved for a traditional credit card.
Frequently asked questions (FAQs)
Do I get my deposit back with a secured credit card?
Generally, yes, but how it happens depends on the terms of each card. Some secured cards do not offer an option to convert to an unsecured card. Your security deposit will be released only when your account has been closed and any remaining balance fully paid.
Other secured cards offer a conversion option. This typically becomes available after you’ve made on-time payments for a certain amount of time. The conversion will be automatic, at the discretion of the lender. Other cards will enable you to apply for an unsecured card periodically, subject to approval.
Is a secured credit card a prepaid card?
Though there are similarities between the two card types, each serves a different function. A prepaid card is designed specifically to make purchases. You load money onto the card, then use it to make your anticipated purchases. However, since it’s not a credit arrangement, a prepaid card cannot be used to build credit.
With a secured card, your credit limit is determined by the amount of your security deposit. But in all other respects, a secured credit card acts like a regular credit card. You can spend up to your credit limit, you’ll be required to make monthly payments, and those payments will be reported to the major credit bureaus. As they are, your credit score should improve, eventually enabling you to qualify for an unsecured card.
Does Chase have a secured credit card?
Chase does not offer a secured credit card. But it does offer some of the very best credit cards available. You can check out the cards Chase has to offer by reviewing the best Chase credit cards.
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