What’s the difference between secured and unsecured credit cards?


When your credit score is in the lowest range — 579 or below — finding a credit card issuer who will approve you for one of their products can be an impossible feat. Fortunately, card issuers offer one type of credit card that almost anyone can be approved for. With a secured credit card, consumers with poor credit get the chance to build good habits and prove their creditworthiness over time.

What is a secured credit card?

Secured credit cards are a type of credit card that requires a cash deposit as collateral. This deposit is normally close to the amount of the line of credit you receive. If you apply for a secured credit card and put down a $500 deposit as collateral, for example, you’ll likely qualify for a $500 line of credit as a result.

You may be wondering why anyone would want a credit card that requires a cash deposit upfront, but it’s not too difficult to understand why consumers with poor credit might be willing to apply. Getting approved for a traditional, unsecured credit card can be impossible when your credit score is poor, yet you may not be able to improve your credit over time if you can’t find a lender to give you credit.

With a secured credit card, on the other hand, consumers who need to work on their scores can secure their line of credit with a cash deposit. And since their payments are reported to the three credit bureaus, they get the opportunity to build credit and improve their credit rating over time.

Secured vs. unsecured credit cards

Generally speaking, unsecured credit cards are a better deal for consumers. When a card is unsecured, this means you don’t have to put down a deposit as collateral. Unsecured credit cards also tend to come with better perks and rewards, lower fees and lower interest rates.

The following chart explains some of the biggest differences between secured versus unsecured credit cards:

Unsecured credit cards Secured credit cards
Deposit required? No Yes
Minimum credit score to qualify Usually 670+ Available for scores below 579
Average APR Over 16 percent APRs tend to be higher for secured credit cards
Annual fee charged? Sometimes Usually
Helps you build credit by reporting to credit bureaus Yes Yes
Rewards available? Yes, with many rewards credit cards Few secured credit cards offer rewards
How to apply for a secured card

Applying for a secured credit card works the same as applying for an unsecured credit card; you’ll start by comparing secured credit cards to find one that offers the benefits you really want, then you’ll follow through by hitting the button that says “apply now.”

Information you’ll need to supply in your secured credit card application will include your name, birth date, address, Social Security number, employment information and income. Most secured credit cards will require you to pay your security deposit when you apply, which you can usually fund online with a debit card or a bank account. If your application for a secured credit card is not approved, the cash deposit you put down will be returned to you, usually in a few business days.

How to upgrade to an unsecured card

If you have had a credit card for bad credit for a while and you have been able to boost your credit score as a result, you may wonder if it’s time to upgrade to an unsecured credit card. You typically have two options when it comes to upgrading a secured card: You can ask your card issuer to transfer your secured line of credit to an unsecured card, or you can simply apply for a new unsecured credit card and close your secured credit card account. Note that, when you close an old secured credit card account in good standing, you’ll get your full deposit back.

It’s usually better to just apply for a new unsecured credit card once your credit score is in an acceptable range. This option lets you choose the right credit card for your needs, whether you want to earn cash back or qualify for 0 percent APR and consolidate debt.

Building credit with a secured card vs. unsecured card

When it comes to building your credit score, you’ll use the same process with a secured credit card as you would with an unsecured credit card.

Both types of cards report your movements to the three credit bureaus — Experian, Equifax and TransUnion. This means that your purchases, balances and credit card payments will be reported by the credit bureaus, which they turn around and use to build a history of credit usage in your name.

If your goal is building credit and keeping your score in the best shape possible, you should strive to pay your credit card bill early or on time each month and keep your credit utilization rate below 30 percent.

Best secured credit cards for 2020

In the market for a secured credit card? If so, you should take the time to compare all the top offers to find one with the best benefits and lowest fees. Bankrate compared dozens of secured credit cards to find the best offers available, and here are the top three options:

Best for earning rewards: Discover it® Secured

The Discover it® Secured is one of the few secured credit cards that lets consumers earn rewards without charging an annual fee. You’ll earn 2 percent cash back at gas stations and restaurants (up to $1,000 in combined spending each quarter, then 1 percent) and an unlimited 1 percent cash back on everything else. The Discover it Secured also allows you to set your own line of credit between $200 and $2,500, depending on the deposit amount you put down.

At the end of your first year, Discover will match all of the cash back you’ve earned. You also get a free FICO credit score access on your credit card statement each month, which can help you monitor your credit progress over time.

Best for no credit check: OpenSky® Secured Visa® Credit Card

The OpenSky® Secured Visa® Credit Card is a good option if you don’t have any credit history at all. You’ll have to pay a $35 annual fee to carry this card, but you get the chance to get a credit card without any sort of credit check. This card lets you choose your own line of credit amount based on the deposit you put down (between $200 and $3,000), and your credit movements will be reported to all three credit bureaus.

This card doesn’t offer any rewards or perks, but it can be a solid option if you want a credit card but don’t want a new hard inquiry on your credit report.

Best for low deposit requirements: Secured Mastercard® from Capital One

The Secured Mastercard® from Capital One lets you secure a line of credit with a $49, $99 or $200 refundable deposit, which makes this card a good option for anyone who doesn’t have a lot of cash to put down. However, Capital One will oversee your account to check if you will be automatically considered for a higher credit line in as little as six months with on-time payments.

You won’t earn any rewards with this card, but you won’t pay an annual fee to carry it, either. You also get the chance to pick your own monthly due date, which can be convenient if you prefer to pay your credit card bill at the end of the month or around payday.

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