Secured vs. Unsecured Credit Cards: Which One Is Right for You?

Introduction

If you’re new to credit or rebuilding your credit, you’ve likely come across the terms secured credit card and unsecured credit card. It’s common to feel confused about “secured vs unsecured credit cards” and wonder how each one works. In plain language, a secured credit card requires a cash deposit as collateral, whereas an unsecured credit card has no upfront deposit requirement. Both types can help you build credit, but they differ in how you qualify and what they offer. This guide will break down secured card how it works, how unsecured cards compare, and help you decide which type of credit card is right for your situation. 

We’ll explain the key differences – from requirements and deposits to credit limits, fees, interest rates, and even how you can upgrade from a secured to an unsecured card. By the end, you’ll know exactly what sets these cards apart and when one might be better for you than the other. Let’s dive in!

What Is a Secured Credit Card (and How Does It Work)?

A secured credit card is a type of credit card that requires an upfront security deposit when you open the account​. This deposit is typically refundable and usually becomes your credit line. For example, if you put down a $300 deposit, your card will have around a $300 credit limit. The deposit acts as collateral for the issuer: if you don’t pay your bill, the bank can use your deposit to cover what you owe​. Because this deposit reduces the bank’s risk, secured cards are generally easier to get approved for – even if you have bad credit or no credit history​. 

Once your secured card is open and the deposit is paid, it works just like any other credit card. You can use it for everyday purchases (in-store or online) up to your credit limit, and you’ll receive a monthly bill for what you charge. Importantly, your security deposit isn’t used to pay for purchases – you still have to pay off your balance each month with your own funds. The deposit is only tapped if you fail to pay what you owe and default on the card. 

In other words, the secured card is not a prepaid card; it extends you credit, and you must repay your charges. You’ll also incur interest if you carry a balance past the due date, just as with a regular card​. Secured credit cards report to the major credit bureaus in most cases, so using one responsibly (keeping balances low and paying on time) will help you build or rebuild your credit over time​. Many people start with a secured card to establish credit. After months of on-time payments, your credit score can improve enough to qualify for a traditional unsecured card​. 

In fact, some of the best secured cards even allow you to “graduate” to an unsecured card with the same bank after a certain period of good behavior. When that happens – or if you close the account in good standing – you’ll get your deposit back​. 

For example, Discover it® Secured automatically reviews your account after seven months to potentially upgrade you to an unsecured card (returning your deposit)​. Not all secured cards offer automatic upgrades, but you can always apply for an unsecured card elsewhere once your credit improves, then close your secured card to reclaim your deposit. 

The bottom line on secured cards: they require some cash upfront, typically at least $200, but they are an excellent tool for those with limited or damaged credit. By putting down a refundable deposit, you get a chance to prove yourself with a real credit card account. Use it wisely, and you can build credit history and eventually transition to a card that doesn’t require collateral.

What Is an Unsecured Credit Card?

An unsecured credit card is what most people simply think of as a “regular” credit card. With an unsecured card, you don’t have to provide any security deposit or collateral to open the account – the bank extends you credit based on your creditworthiness alone​. The issuer will check factors like your credit score, credit history, and income to decide whether to approve you and what credit limit to grant. Generally, because there’s no upfront deposit to secure the account, unsecured cards require you to have at least fair or good credit for approval in most cases​. 

In other words, the bank takes on more risk, so they want to see a track record of responsible credit use before trusting you with a line of credit. If you have established credit history (for example, a credit score in the mid-600s or higher), you’ll have a good chance at qualifying for an unsecured credit card. 

Credit card companies offer a wide range of unsecured cards – from basic “starter” cards for those with fair credit, all the way to premium rewards cards for those with excellent credit. Your credit limit on an unsecured card is usually determined by your credit score and income. Someone with a high score and solid income might get a large credit line (several thousands of dollars or more), whereas someone with a limited or fair credit history might start with a smaller limit (perhaps a few hundred dollars). 

Over time, as you demonstrate responsible use, many issuers will increase your unsecured card’s credit limit. It’s important to note that if you’re in the poor credit range (generally below the mid-600s), your options for unsecured cards will be more limited. There are some unsecured cards marketed to people with bad credit or no credit, but they often come with significant downsides. Typically, “easy approval” unsecured cards for bad credit charge very high fees and interest rates​. For example, an unsecured card for poor credit might have a $75 annual fee, a monthly maintenance fee, and a steep APR, all for a small $300 credit line. Because of these costs, a secured card can often be a better choice than a subprime unsecured card if you’re trying to rebuild credit​. (After all, a secured card’s deposit is refundable, while fees you pay on an unsecured card are gone forever.) 

Aside from the absence of a deposit, an unsecured credit card functions the same way as a secured one: you make purchases up to your credit limit, you get a monthly statement, and you must pay at least the minimum due. If you pay the full balance each month, you won’t incur interest; if you carry a balance, you’ll be charged interest on the remaining amount. Unsecured cards also report to credit bureaus, so they will help build your credit as long as you use them responsibly – making payments on time and keeping balances in check. 

According to Experian, whether a card is secured or unsecured does not directly impact your credit score; what matters is that you use the card wisely and pay on time​. One big advantage of unsecured cards is that many offer rewards and perks if you qualify. Cash-back, points, travel miles, and other benefits are common on unsecured credit cards (especially those for good credit). By contrast, secured cards have limited rewards – only a few secured products on the market offer cash-back or other perks. Likewise, interest rates tend to be lower on unsecured cards, particularly if you have good to excellent credit, whereas secured cards aimed at credit-builders often carry higher APRs​. All of this means if you’re eligible for an unsecured card with decent terms, it can be the more rewarding option. 

In summary, an unsecured credit card is ideal once you meet the credit requirements. There’s no upfront cost to open the account (aside from any annual fee the card might have), and you can start using your available credit immediately. But approval isn’t guaranteed – you’ll need to have a credit profile that meets the card’s criteria, or else consider a secured card as an alternative.

Secured vs. Unsecured Credit Cards: Key Differences

To clear up any remaining confusion, here’s a quick side-by-side comparison of the key differences between secured and unsecured credit cards:

• Security Deposit: Secured cards require a cash deposit (usually a minimum of $200) that acts as collateral for the account​. Unsecured cards require no deposit – approval is based on your creditworthiness alone.

• Approval Requirements: Secured cards are easier to qualify for if you have bad credit or no credit, since the deposit reduces the lender’s risk​. Unsecured cards typically require a higher credit score or a positive credit history for approval; the best unsecured cards usually demand good to excellent credit​.

• Credit Limit: Secured card credit limits are tied to your deposit. If you put down $500, your credit limit is usually around $500 (some secured cards allow a bit more or less, but deposit = limit is common)​. Unsecured card limits are set by the issuer based on your credit score, history, and income – they can range from a few hundred dollars for a starter card to tens of thousands for a prime card.

• Fees and Interest Rates: Both secured and unsecured cards can charge fees and interest, but the specifics often differ by card type. Secured cards (especially good ones) often have low or no annual fees, though their interest rates tend to be relatively high (since they target credit-builders)​. Unsecured cards run the gamut: if you have good credit, you can find many with no annual fee and moderate APR, but if your credit is poor, the unsecured cards you qualify for might come with hefty fees and very high interest​. Always compare the terms – sometimes a secured card with a refundable deposit and no annual fee is more cost-effective than an unsecured card loaded with non-refundable fees.

• Rewards and Benefits: Secured cards typically have few rewards, although a handful (like Discover it Secured or Capital One Quicksilver Secured) do offer cash back. Unsecured cards are far more likely to offer rewards programs, travel perks, or other benefits – but usually only if you have at least fair to good credit to qualify. In short, the biggest perks (cash-back, airline miles, etc.) are found on unsecured cards.

• Upgrade Path: With a secured card, you have a built-in upgrade path: use it responsibly and you can graduate to an unsecured card, recovering your deposit in the process​. With an unsecured card, there’s no deposit to worry about – you already have a standard card. However, if you start with a basic unsecured card, you can always aim to upgrade to a better unsecured card (with higher limits or more rewards) as your credit improves. Some issuers of secured cards will automatically review your account after 6-12 months to consider refunding your deposit and converting it to an unsecured account (for example, Capital One and Discover have such programs)​.

• Who They’re Best For: Secured cards are best for people with limited or troubled credit who can afford a deposit, and who want to build credit in a relatively low-risk way. Unsecured cards are best for people who qualify based on credit – those who already have at least fair credit or better and don’t want to tie up money in a deposit.

Who Should Get a Secured Credit Card?

A secured credit card is ideal for individuals who need to build or rebuild credit and are unable to get approved for a traditional unsecured card. You should consider a secured card if one or more of the following describes you:

• No Credit History or Low Credit Score: If you’re just starting out (for example, a student or recent graduate with no credit, or an immigrant new to U.S. credit) or your credit score is below roughly 600, a secured card is often the most attainable option. Secured cards are designed for people in this situation.

• Past Credit Challenges: Perhaps you had some financial missteps – such as a bankruptcy, default, or multiple late payments – that damaged your credit. A secured card gives you a second chance to prove you can manage credit responsibly. Issuers are more willing to approve you because of the deposit’s protection.

• Denied for Unsecured Credit: If you’ve applied for an unsecured credit card and been denied, switching gears to a secured card is a smart move. Since secured cards are easier to get approved for with bad credit​, you can use one to start rebuilding your credit profile after a denial.

• You Have Savings for a Deposit: You’ll need to have some cash you can set aside for the security deposit (again, usually at least $200). If you can spare that money temporarily, a secured card lets you essentially “borrow from yourself” to jumpstart your credit. (Remember, you’ll get this deposit back later as long as you use the card properly.)

• Avoiding Expensive Fees: As mentioned, some unsecured cards for bad credit come loaded with fees. If you’re confronted with an unsecured offer that has, say, a $99 annual fee and a $6.95 monthly maintenance fee, you’re generally better off choosing a secured card with a refundable deposit. In many cases, a secured card with no annual fee will cost you less in the long run than a high-fee unsecured card​. The secured card’s deposit isn’t a fee; you’ll get it back, whereas fees on an unsecured card are money down the drain.

For example, consider Jane, who has a 550 credit score. She receives an offer for an unsecured “credit card for bad credit” with a $75 annual fee and a $300 starting limit. Instead of paying $75 a year for that card, Jane decides to put down a $300 deposit on a secured credit card that has no annual fee. Now, she has a $300 credit line and avoids costly fees. After using her secured card carefully for a year – keeping her balance low and paying on time – Jane’s credit score improves into the 600s. Her card issuer then refunds her deposit and upgrades her to an unsecured card. In the end, Jane saved money (she got her $300 back) and rebuilt her credit on the way. 

Bottom line: If you’re in a position where your credit isn’t strong enough for a decent unsecured card, a secured credit card is likely the right choice. It provides a stepping stone to qualify for better credit products down the road. Just be sure you can part with the deposit money for a while and commit to using the card responsibly.

Who Should Get an Unsecured Credit Card?

Unsecured credit cards are the go-to choice if you already have a bit of credit history or a fair to good credit score that can qualify you for an entry-level card. You might opt for an unsecured card if:

• You Have Fair, Good, or Excellent Credit: Generally, a FICO score in the mid-600s or above will open the door to at least some unsecured credit card offers. If you’ve managed loans or a credit card before and have a history of on-time payments, you may not need to tie up money in a secured card at all. For instance, many student credit cards are unsecured and available to young adults with limited credit (often with a cosigner or proof of income). And if your score is in the 700s, you can skip secured cards entirely and go straight to a card with rewards and low rates.

• No Extra Cash for a Deposit: Perhaps the only thing holding you back from getting a secured card is the deposit requirement. If you don’t have $200 or more available to lock away, then seeking an unsecured card makes sense. There are a few unsecured cards geared toward people with poor to fair credit – just be cautious and compare their fees and terms. Sometimes, credit unions or fintech companies offer unsecured starter cards or alternatives that look at income and other factors beyond just credit score.

• You Qualify for a Decent Offer: If your credit score is on the cusp (say around 630-650), you might find you can get approved for an unsecured card with a smaller credit limit. Many issuers have cards for “fair” credit that come with manageable fees. For example, John has a 640 credit score and steady income. He applies for an unsecured credit card designed for building credit and gets approved for a $500 limit with a $39 annual fee. Since John didn’t have to put down a deposit, he can use his $500 line immediately and focus on building credit by paying his bill on time. Over time, he can request credit line increases or upgrade to a better card as his score improves.

• You’re Looking for Rewards or Perks: If one of your goals is to earn cashback or travel points on your spending, unsecured cards are the way to go. As noted, most secured cards don’t offer robust rewards. So if your credit is good enough to snag a card that gives you 1-2% back on purchases or other benefits (and you’re confident you’ll pay your balances to avoid interest), an unsecured rewards card is likely the right fit.

• You Want a Higher Credit Limit Potential: Unsecured cards generally have more room for credit limit growth. Without the constraint of a deposit, your limit can be increased by the issuer as you demonstrate responsible use. This can help your credit utilization ratio and give you more flexibility in spending (though you should still avoid excessive debt). Secured cards, on the other hand, often cap out at a certain limit unless you add more deposit.

In short, choose an unsecured credit card if you meet the credit requirements and don’t want to front a security deposit. Always shop around for a card with favorable terms for your credit level – for example, avoid cards with sky-high fees if you can qualify for one with no annual fee. If you’re not sure what you qualify for, you might try a pre-qualification tool or use a credit card comparison to see which unsecured cards match your profile. That said, if every unsecured option you find comes with predatory fees or you get denied, be prepared to pivot. There’s no shame in starting with a secured card if needed – it’s a temporary stepping stone. The good news is that both secured and unsecured cards can help you build credit effectively when used properly, so either path will lead you toward better options in the future​.

Conclusion: Choosing the Right Card for You

When it comes to secured vs. unsecured credit cards, the best choice ultimately depends on your personal credit situation and financial ability. If you have the credit score (and history) to qualify for a decent unsecured card – and you prefer not to tie up money in a deposit – then an unsecured credit card will likely serve you well. On the other hand, if you’re just starting out or repairing your credit and want a reliable way to build credit, a secured credit card is often the smartest, most cost-effective option. 

Remember, a secured card’s deposit is not a fee, and you’ll get it back once you’ve proven yourself as a responsible cardholder. In either case, success comes from using the card wisely. Keep your balance low relative to your limit, always pay your bill on time, and avoid biting off more debt than you can handle. Do that, and you’ll be building a positive credit history whether your card is secured or unsecured.

Next steps: If you’re unsure which card to pick, try using our credit card comparison tool to view secured and unsecured card options side by side. You can also check out our curated lists of secured credit cards and credit cards for bad credit on BestCreditCardOptions.com for reputable recommendations. Finding the right card is a big step toward improving your financial future. Whether you go secured or unsecured, choose the card that fits your needs, and start building your credit with confidence!