What is a Secured vs. Unsecured Credit Card?
Key points about: the differences between secured and unsecured credit cards
Secured cards often come with lower credit limits and higher interest rates than unsecured cards.
Unsecured credit cards require a higher credit score and more income to qualify than secured cards.
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.
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.
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.
Both secured and unsecured cards have income requirements and other features worth comparing. Let’s take a closer look at the qualifications and features of a secured vs. unsecured credit card so you can choose the best credit card for you.
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 eighteen or older old 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 can 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 credit card.3
- 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 Credit CARD Act of 2009, borrowers between eighteen and twenty 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 twenty-one 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 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. The credit limit for a secured credit card (which requires a deposit of equal value) can range from $200 to even $2,500. 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 interest 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, 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.4
- 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. Card issuers determine 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.
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 often need a higher 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 do not 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,* 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 months of on-time payments and maintaining good status on all your credit accounts, and if you qualify, Discover 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.
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