A credit card can help you reach new financial heights by allowing you to build credit with responsible use. And depending on where you are in your credit journey, you may qualify for a secured or unsecured credit card. Both cards let you make purchases with credit and require you to make a minimum monthly payment toward your balance, but there are distinct differences.
What is a Secured vs. Unsecured Credit Card?
Last Updated: November 21, 2023
5 min read
Key points about: the differences between secured and unsecured credit cards
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Secured cards often come with lower credit limits and higher interest rates than unsecured cards.
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Unsecured credit cards require a higher credit score and more income to qualify than secured cards.
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Unlike unsecured cards, secured credit cards require a security deposit, which is refundable when the account is closed with no balance or if the borrower graduates to an unsecured card after several on-time payments.
One primary difference is that a secured credit card (often issued to borrowers with little to no credit history or bad credit) requires a refundable security deposit. This protects the lender if the borrower defaults on their loan. Unsecured credit cards do not require a security deposit.
Qualifications for a secured vs. unsecured credit card
Whether you’re a new borrower looking for your first credit card or an experienced borrower with a credit history, specific qualifications determine what credit card you qualify for, secured or unsecured.
- Age: All borrowers must be 18 or older to apply for a credit card in their name. This applies to both secured and unsecured cards.
- Credit history: Your credit history is a record of your borrowing and repayment activity over time. Lenders look at your history to review your late or timely payments, the debt you owe, and more. These factors determine your credit score (a three-digit number that quantifies your report). Responsible activity can improve your credit score, and borrowers with good credit scores are more likely to qualify for an unsecured credit card.
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Borrowers with little to no credit history or poor credit may struggle to qualify for an unsecured credit card. But credit card companies may relax credit history requirements for secured cards because applicants provide a refundable security deposit. You may not even need a credit score to apply for a secured credit card. For example, there’s no credit score required to apply for a Discover it® Secured Card.1
- Income: All credit cards require some level of income to qualify. But because they come with a lower credit limit and require a deposit, income requirements for a secured credit card are often lower than requirements for unsecured cards. Either way, issuers will look at your monthly income to determine what credit limit you can comfortably afford. You might have trouble getting either card if you don’t have enough income.
Age also impacts credit card income requirements. According to the Federal Trade Commission, the Credit CARD Act of 2009 says borrowers between 18 and 20 years old must prove they can pay their debt independently. Independent income can include income from a job, regular allowances, and left-over scholarship or student loan funds. Borrowers 21 and older can include household income (like the income from a spouse) when applying for credit.
Features of a secured vs. unsecured credit card
Secured and unsecured credit cards come with features that can vary by the credit card issuer and type of card.
- Credit limits: Because secured credit cards are for individuals with little credit or poor credit, the credit limits offered on secured cards are often lower than unsecured cards. For a secured credit card, your credit line will equal your deposit amount, starting at $200 up to $2,500.2 The credit limit on an unsecured credit card (subject to a borrower’s income and credit history) can start in the hundreds but span well beyond.
- Interest rates: Traditionally, secured credit cards come with higher interest rates than unsecured cards. Factors like credit history determine the interest rate for any credit card. The better your credit score, the lower your interest rate may be. A lower rate can lead to smaller interest payments if you carry a balance. However, as long as your credit card company offers a grace period, you’ll never pay interest on regular purchases if you pay your balance in full and on time each month, no matter the card type.
- Rewards: Depending on a credit card company’s rewards program, secured and unsecured credit cards may offer cash back rewards. For example, the Discover it® Chrome Gas & Restaurant Credit Card and the Discover it® Secured Credit Card both let you earn 2% Cashback Bonus® at gas stations and restaurants on up to $1,000 in combined purchases each quarter, automatically.3
- Fees: True for secured and unsecured credit cards, you may incur certain fees based on how you use your credit card, including cash advance, balance transfer, late payment, and foreign transaction fees. The credit card issuer determines fees, which may vary by card. Some credit cards may also include an annual fee (an amount borrowers pay annually to use their card). Discover has no annual fee on any of our cards.
| Secured Credit Card | Unsecured Credit Card | |
|---|---|---|
| No credit history required | Established credit history required | |
| Security deposit required | No security deposit required | |
| Lower credit limit | Higher credit limit | |
| Higher interest rate | Lower Interest rate | |
| Reward options exist, but are less generous | More rewards & cards to choose from |
Is a student credit card a secured or unsecured card?
Student credit cards are typically unsecured cards, but most require proof of college enrollment to qualify. While borrowers may need a good credit score and income to be eligible for unsecured credit cards, student credit cards have more lenient requirements tailored to young adults with limited income and credit history. But like secured credit cards, student cards often start with lower credit limits, giving new cardholders a chance to use credit responsibly but with less risk of taking on too much debt. Unlike a secured card, they don’t require a deposit.
Many student credit cards also offer rewards that can help students with everyday expenses. With Discover® student credit cards, you can earn cash back rewards and build credit with responsible use,4 and there’s no credit score required to apply.5
Graduating from a secured to an unsecured credit card
Secured credit cards offer a steppingstone to more financial freedom. For some creditors, after several on-time payments, secured cardmembers may get their deposit back and upgrade to an unsecured credit card. Usually, the card’s account number, benefits, and rewards will remain the same. With the Discover it® Secured Credit Card, you can upgrade to an unsecured card after six consecutive on-time payments and maintaining good status on all your credit accounts, and if you qualify, we will increase your credit line.6
Whether new to credit or well into your borrowing years, secured and unsecured credit cards offer features and benefits that can help you improve your borrowing potential and bolster your financial health. Understanding how they differ can help you decide which card fits your needs most.
Make the most of your tax refund. Build your credit history.*
Apply for a Discover It® Secured Card and use your tax refund as a security deposit.**
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- No Credit Score Required (Secured Card): Based on 2022 Discover it Secured credit card application data, applicants without a credit score may qualify. You must meet other applicable underwriting criteria. When we evaluate your creditworthiness, we consider all the information you provide on your application, your credit report, and other information. If you have a credit score, we may use that in our evaluation.
- Minimum Security Deposit: A minimum security deposit of $200 is required to open this account and your security deposit must equal your credit limit. Your maximum credit limit (up to $2500) will be determined by your income and ability to pay.
- 2% Claim: You earn a full 2% Cashback Bonus® on your first $1000 in combined purchases at Gas Stations (stand-alone), and Restaurants each calendar quarter. Calendar quarters begin January 1, April 1, July 1, and October 1. Purchases at Gas Stations and Restaurants over the quarterly cap, and all other purchases, earn 1% cash back. Gas Station purchases include those made at merchants classified as places that sell automotive gasoline that can be bought at the pump or inside the station, and some public electric vehicle charging stations. Gas Stations affiliated with supermarkets, supercenters, and wholesale clubs may not be eligible. Restaurant purchases include those made at merchants classified as full-service restaurants, cafes, cafeterias, fast-food locations, and restaurant delivery services. Purchases must be made with merchants in the U.S. To qualify for 2%, the purchase transaction date must be before or on the last day of the offer or promotion. For online purchases, the transaction date from the merchant may be the date when the item ships. Rewards are added to your account within two billing periods. Even if a purchase appears to fit in a 2% category, the merchant may not have a merchant category code (MCC) in that category. Merchants and payment processors are assigned an MCC based on their typical products and services. Discover Card does not assign MCCs to merchants. Certain third-party payment accounts and digital wallet transactions may not earn 2% if the technology does not provide sufficient transaction details or a qualifying MCC. Learn more at Discover.com/digitalwallets. See Cashback Bonus Program Terms and Conditions for more information.
- No Credit Score Required (Student Card): Based on the preceding 12 months of Discover Student credit card application data, applicants without a credit score may qualify. You must meet other applicable underwriting criteria. When we evaluate your creditworthiness, we consider all the information you provide on your application, your credit report, and other information. If you have a credit score, we may use that in our evaluation.
- Getting your deposit back: Monthly reviews start your seventh month as a customer. We will refund your security deposit if you have made all payments on time for the last six consecutive billing cycles on all your Discover accounts including any loans, and you've remained in “good status” on all credit accounts you are responsible for whether they are Discover accounts or not. “Good status” means: (1) your credit report shows no delinquencies, charge-offs, repossessions, or bankruptcies for the six months prior to our review; and (2) 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. Monthly reviews may be delayed if you change your payment due date. When you qualify to upgrade to a standard, ‘unsecured card’, Discover will also consider you for a credit line increase. We typically process your refund in 2-3 business days based on your delivery preference. If you close your account and pay in full, we’ll return your deposit within two billing cycles plus ten days.
- *Card: No Credit Impact for Pre-Approval: There is no hard inquiry to your credit report to check if you’re pre-approved. If you’re pre-approved, and you move forward with submitting an application for the credit card, it will result in a hard inquiry which may impact your credit score. Receiving a pre-approval offer does not guarantee approval. Applicants applying without a social security number are not eligible to receive pre-approval offers. Card applicants cannot be pre-approved for the NHL Discover Card.
- *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.
- **Minimum Security Deposit: If approved, you must make a minimum security deposit of $200 (or more, in increments of $100 up to $2,500), which will equal your requested credit limit. Discover will determine your maximum credit limit by your income and ability to pay
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