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What Is an Unsecured Credit Card?

4 min read

Last Updated: November 14, 2024

Table of contents

Key Takeaways

Unsecured credit cards are the most common type of credit card.
Unlike secured credit cards, unsecured cards don’t require a security deposit.
To qualify for an unsecured credit card, you usually need to have some credit history.

Unsecured credit cards are the most common type of credit card. In fact, most of the time, when people apply for a new credit card, they’re applying for unsecured credit. It’s what most people consider a regular, or traditional, credit card.

But what does an unsecured credit card mean? Consider some basic information to help you understand what an unsecured credit card is and how it works.

How unsecured credit cards work

“Unsecured” in the case of credit cards means that the lender isn’t securing your debt with collateral, such as a deposit that the lender or card issuer can keep if you fail to make payments.

Unsecured debt is typically riskier for lenders. Because of this risk, the terms of an unsecured credit card are based on the borrower’s credit rating, ability to pay, application information, and other factors.

Examples of “secured” debt may be car loans or mortgage loans, which are “secured”, or backed by collateral—a house or a car. Collateral helps ensure that the lender can get some of their money back in the event of nonpayment. Unsecured credit card debt has no such requirement.

What is a secured credit card

A secured credit card requires the cardmember to pay a refundable security deposit. Your deposit usually equals your credit limit (or credit line). This protects the lender if the borrower defaults on their loan. As stated above, unsecured credit cards do not require a 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

People with little to no credit history (or who have run into bad credit) can apply for secured credit cards as a path to financial freedom. For some credit card companies, after several on-time payments, secured cardmembers may get their deposit back and upgrade to an unsecured credit card.

Unsecured credit card interest rates

As part of your credit card agreement, you promise to repay the money you borrow against your credit limit. In addition, you agree to pay interest on the debt (unless you pay your full balance each month by the due date). Credit cards tend to have higher interest rates than car loans or mortgages, partly because credit card debt is riskier for banks.

Borrowers who have a good credit score are typically less risky for banks to lend to. Credit card issuers tend to offer these borrowers a lower interest rate, or annual percentage rate (APR). The same credit card company may offer different APRs to applicants based on their credit history and other factors.

What do you need to apply for an unsecured credit card?

An unsecured credit card may require a higher income level and credit score than a secured card. The exact requirements can vary by credit card issuer, but if you get turned down for an unsecured card, you can apply for a secured card and work on building or rebuilding credit until you qualify for an unsecured card.

While the requirements for approval vary by credit card company, you must be 18 years old to apply for your own credit card in the United States. And if you're under 21, you'll usually need to show the credit card issuer that you have your own source of income. In addition to some financial information, you'll need to provide personal information as well, like your name, Social Security number, date of birth, and more.

Alternatives to unsecured credit cards

Although unsecured cards are the most common form of credit cards, not everyone can qualify for this type of card. If you have limited credit history or are rebuilding credit, you might want to consider a secured credit card. A secured credit card may give you the ability to borrow only a small amount of money, for which you pay a security deposit up front that typically equals your credit line.

Over time, as you pay your bills and use your new secured credit card and other loans responsibly, you may rebuild your credit and get to the point where you’re ready to move on (or “graduate”) to an unsecured credit card.

Did you know?

If you use your Discover it^® Secured Card responsibly, you can get your deposit back after six consecutive months of on-time payments and maintaining good status on all your credit accounts.³

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