In a NutshellUnsecured credit cards don’t require a security deposit and can offer lower interest rates, fewer fees and more rewards than secured cards. And unlike secured cards, unsecured cards can be more difficult to qualify for if you have limited or poor credit.
An unsecured card is a credit card that doesn’t require collateral in the form of a security deposit to secure it.
Unsecured credit cards are common, but if you don’t have good credit, you may have a difficult time qualifying for one.
Unsecured credit cards are riskier for lenders since they’re not secured by collateral. Because of this, unsecured cards tend to require stronger credit. If you don’t qualify for an unsecured credit card, you could consider applying for a secured credit card, which will require you to put down a security deposit.
What are the advantages and potential pitfalls of an unsecured card?
There are a few reasons why people may prefer unsecured credit cards to secured cards.
Unsecured cards don’t require a security deposit, which means you don’t have to set aside cash in order to apply for a card.
While it depends on the card, unsecured cards can have lower interest rates and offer more rewards than secured cards.
Another advantage to unsecured cards is that they can have higher credit limits without a security deposit. This can give you more flexibility with your personal finances. Having a higher credit limit can also help your credit scores by making it easier to keep your credit utilization rate low.
Just make sure that you’re keeping your credit card balances at 30% or less of your total credit limit — and that you’re spending only what you can comfortably afford to pay back, even if you have a secured card.
What are the benefits and hazards of secured cards?
One of the biggest benefits of a secured credit card is that it can be easier to apply for when you’re trying to build credit from scratch.
When working on improving your credit, you’ll want to make sure that whatever card you get reports to the three main credit bureaus. This is one of the benefits of secured cards, but be sure to ask the card issuer to confirm this before applying for one. The card issuer may even advertise it on its site, too.
There are also some downsides to secured cards that you’ll want to be aware of. Some secured cards have higher interest rates, annual fees and other charges. And rewards for secured cards can be sparse or nonexistent.
How to qualify for an unsecured card
If your poor credit is keeping you from qualifying for an unsecured card, you may be able to work on your credit with a secured card. Making at least the minimum payment on time and in full each month on your secured card can help build your credit, and eventually you may be able to upgrade to an unsecured card. Sometimes secured cards will “graduate” users up to a fully unsecured card and refund the security deposit completely. Other times, you’ll need to apply for a new, unsecured card.
If you’re looking for cards that can you help you build credit, secured cards aren’t your only option. Easier-approval credit cards are unsecured cards designed for people with limited or damaged credit histories. And if you’re enrolled in college, you can compare student credit card offers on Credit Karma.
Other ways to build your credit include getting added as an authorized user on someone else’s credit card account who has solid credit or taking out a credit-builder loan with a bank or credit union.
There’s a lot to love about unsecured credit cards. They don’t require a security deposit and we think they’re better consumer products in general.
But if you can’t qualify for one yet, that’s OK. A secured card or other credit-building tool can help you develop your credit. By taking full advantage of these tools, you may be able to qualify for an unsecured card sooner than you think.