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What’s the Difference Between a Secured and an Unsecured Credit Card?

Published April 1, 2022
7 min read

One of the biggest differences between a secured credit card and an unsecured credit card is that secured credit cards require you to pay the card issuer a refundable security deposit. The deposit will also determine your card’s credit limit. For example, if you are approved for a $200 credit limit, you must pay the card issuer $200 and your credit limit will be $200 — you can deposit more if you are approved for a higher limit.

Unsecured cards don’t require a security deposit but may have stricter requirements to qualify. Or unsecured cards with easier qualification requirements might charge higher fees.

In comparing the difference between secured and unsecured credit cards, consider what type of card you’ll be able to get, the cards’ features and fees, and your long-term plan for using the card.

Differences in qualifying for a secured vs. unsecured credit card

The specific requirements can depend on the card issuer and the credit card, but your credit history, income, and expenses can all be important factors.

Credit history

Secured credit cards can help people build a credit history for the first time or rebuild their credit if they have a low credit score and use the account responsibly.1 As a result, secured credit cards often don’t require as high of a credit score as unsecured cards. You might even qualify for a secured card if you don’t have any credit history or score. When Discover evaluates your creditworthiness, we consider all the information you provide on your application, your credit report (which may include your credit score), and other information.

Credit card companies can relax their credit history and score requirements with secured cards because the applicant has provided a refundable security deposit. But the security deposit isn’t intended to cover your minimum payment or monthly bills. Missing a payment could still lead to a late payment fee and hurt your credit.

Instead, the card issuer has the security deposit in case a cardholder stops making payments and defaults on the account. When that happens, the card issuer might close the account and use the security deposit to help cover the past-due amount.

Income and expenses

Card issuers will look at your monthly income and expenses to determine if you can afford to pay a new credit card bill. If you don’t have enough income, you might have trouble getting either type of card. However, because secured cards can come with a lower credit limit (which would lead to a lower minimum monthly payment), it may be easier to get a secured card.

Student status

Many students don’t have a long credit history or high income. But there are unsecured student credit cards that may be available if you’re at least 18 years old and have a source of independent income — such as a part-time job. Student cards often start with a low credit limit, which can give cardholders a chance to practice using a credit card responsibly.

Discover’s two student credit cards also offer cash back rewards, no annual fee, and no foreign transaction fee. There’s also no credit score required to apply for Discover Student credit cards.2

Shopping with a secured vs. unsecured credit card

You can use both secured and unsecured cards to shop online and in stores. Both types of cards can also work the same way in terms of billing cycles, interest, credit limits, and minimum payments. One difference you may notice is that secured cards may have lower credit limits, which means you might not be able to use them for large purchases. Additionally, using a large portion of your card’s credit limit can lead to a high credit utilization ratio, which could hurt your credit score.

If you want a higher credit limit, you could pay a larger security deposit up to your approved credit line when you open your secured card. Or you could use the secured card to build your credit history, and then try to get an unsecured card with a higher limit later.

Choosing a secured vs. unsecured credit card

If you already have good credit and enough income to qualify for an unsecured credit card, that may be the best option because you don’t have to pay the card issuer a refundable security deposit.

However, there are also a few unsecured cards for people with poor credit. If you’re comparing a secured card and a subprime unsecured card, you’ll want to consider several factors to determine which will work best for you.

Check the fees

You might want to start by reviewing the cards’ terms and conditions to see which fees they charge and how much you might have to pay to get and use the card.

  • Application, program, or processing fee. A one-time fee you’ll need to pay when you first open the account.
  • Annual fee.An annual fee that you’ll pay when you open your card and every year going forward.
  • Additional card fee. A fee if you want to add an authorized user to your account.3
  • Usage-based fees. Fees that you may have to pay depending on how you use your card and account. For example, foreign transaction, cash advance, balance transfer, and late payment fees.

Avoiding as many fees as possible can help you save money during the first year and if you decide to keep your card open. The Discover it® Secured Credit Card doesn’t charge annual fees, overlimit fees or foreign transaction fees.

Compare credit limits

Secured credit cards may have a minimum security deposit requirement, such as $200, which will determine your card’s credit limit. If you want a higher limit, you’ll need to send a larger deposit up to your approved credit line.

Unsecured subprime credit cards might start with a slightly higher credit limit, such as $300 to $400. However, any upfront fees you have to pay could be added to the card’s balance. As a result, your starting credit limit could still be around $200, and unlike the security deposit, you can’t get the money back later.

The cards’ benefits

Many secured and subprime unsecured credit cards don’t offer rewards or many cardholder benefits. If you find some options, also consider the fees and credit limit. Depending on how you plan on using the card, avoiding fees could help you save more money than you’d earn from rewards. There are also a few exceptions — the Discover Secured Credit Card has cash back rewards with no annual fee.

Credit reporting

Because you don’t know which credit report a company will request in the future, you want to make sure you’re building a credit history with all three major credit bureaus — Equifax, Experian, and TransUnion. Discover reports your credit history to the three major credit bureaus so it can help build your credit if used responsibly. Late payments, delinquencies or other derogatory activity with your credit card accounts and loans may adversely impact your ability to build credit.

But some card issuers may only report to one or two of the bureaus. If your account isn’t reported to a bureau, it can’t impact the bureau’s credit report or a credit score based on that report.

Interest rates

Many secured and unsecured cards won’t charge you interest on purchases if you pay your balance in full and on time each month. However, you may want to review the cards’ interest rates, as a lower rate can lead to smaller interest payments if you carry a balance.

Moving from a secured to an unsecured credit card

Many people use a secured credit card as a stepping stone to help them build a credit history. After building their credit, they’ll apply for an unsecured card and then close their secured card to avoid additional fees and get their security deposit back.

But moving from a secured to an unsecured card is easier if you don’t have to open and close cards. With the Discover it® Secured Credit Card, you can get your deposit back after six consecutive months of on-time payments and maintaining good status on all your credit accounts.4 “Good status” means your credit report shows no delinquencies, charge-offs, repossessions, or bankruptcies for the six months prior to our review and your Discover Secured Card is not in a prohibited status at the time of our review, including, but not limited to: closed, revoked, suspended, subject to tax levy, garnishment, deceased, lost/stolen, or fraud.

When this happens, your account may be upgraded to an unsecured card with the same account number, benefits, and rewards.

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