Secured vs. Unsecured Credit Card: A Guide To Building Credit

I was deeply averse to credit cards for years out of worries about building up debt. When I finally tried to get a card, it was trickier than I expected. That's a common problem, so choosing the right credit card as early as possible is key to building your credit.

If you're establishing your credit from scratch, have made credit mistakes in the past, or if your credit score is off the charts, there are two main card types: secured and unsecured credit cards. Which is better depends on your credit, financial situation, and goals.

What is the difference between secured and unsecured credit cards?

Secured credit cards differ from unsecured cards in their structure. With a secured credit card, you take on more of the risk than the credit card company. You put down a security deposit, which usually ranges between $200 and $500, and that deposit acts as your credit limit. If you deposit $200, you can spend up to $200 with the card.

The deposit acts as a safety net for the credit card issuer. If you don't make payments, the credit card company can use your deposit to cover the balance.

With unsecured credit cards, there's no need for a security deposit. The credit card company gives you a credit limit based on your credit history and income. As a result, unsecured cards are usually for people with fair or better credit scores.

When should I get a secured credit card?

A secured credit card can make sense in the following scenarios.

• You have no credit history: If you're like the old me and don't have a credit history, qualifying for an unsecured card can be very difficult. Unsecured credit cards usually require borrowers to have at least fair credit, while secured credit cards are available to those with poor credit or no credit history.
• You don't have a cosigner: Without an established credit history, you can qualify for unsecured credit cards if you have access to a cosigner (someone like a parent or relative with good credit who agrees to make payments if you fall behind). However, if you don't know anyone with good credit who is willing to cosign a credit card application, a secured card may be your only option.
• You want help managing credit: If you've made credit mistakes in the past, such as building up a credit card balance by impulse spending (online shopping is a tempting trap!), secured credit cards can be a great tool for teaching yourself good credit habits. Secured credit cards act like cards with training wheels, so to speak. Since they require a security deposit, you can only spend up to that amount as your credit limit, so it can help you avoid overspending.

When should I get an unsecured credit card?

An unsecured credit card may be a better fit in the following situations.

• You have fair credit or better: If you have a credit history and a fair to excellent credit score, you're more likely to qualify for an unsecured credit card than other people.
• You want to earn rewards: Unsecured cards offer more perks and benefits, such as cashback rewards or airline miles, travel insurance or protection, and promotional annual percentage rate (APR) offers on purchases or balance transfers.
• You want a higher credit limit: Unsecured credit cards don't involve security deposits, and those with good credit can qualify for credit limits of $5,000 or more. A higher limit allows you to finance purchases and have time to repay the balance.
• You want lower rates and fees: In general, secured credit cards have higher fees and APRs than unsecured cards, so an unsecured card can be more cost-effective.

Does a secured or unsecured credit card build credit faster?

Secured credit cards and unsecured credit cards build credit at the same rate. The type of card isn't important. What creditors care about is how you use your credit card. Both secured and unsecured card companies report your balance and payments to the major credit bureaus — Equifax, Experian, and TransUnion — so maintaining good financial habits can help you build your credit.

Whichever type of credit card you have, practice the following habits to establish a strong credit history.

• Pay your bill on time: Ideally, you should pay off the balance in full every month by the statement due date to avoid credit card interest. But if that's not possible, at least be sure to make the required minimum payment on time every billing cycle. Your payment history is the biggest factor affecting your FICO credit score. Signing up for automatic payments to cover the minimum required can help you make timely payments and build your credit.
• Keep your balance low: Stick to a budget or spending plan and keep your credit card balances low. Ideally, you'll use no more than 30% of your credit limit, but the lower your credit utilization percentage, the better.
• Limit new credit applications: While it can be tempting to apply for a bunch of new credit cards at once, try to curb that impulse. Instead, apply for one card and use it responsibly. If you have a secured card, plan on using it for six to 12 months, then you may be able to qualify for an unsecured card. After that, only apply for new credit when you really need it.

What to look for when shopping for a new credit card

Whether you decide to apply for a secured credit card or an unsecured credit card, consider these factors before making your selection.

• Fees: Both secured credit cards and unsecured cards can have annual fees, but there are many options available without those. Look for the best secured credit cards and unsecured cards with no fees so there's no cost to carrying them.
• Credit reporting: Not all credit card companies report to all three credit bureaus, so make sure the company reports to Equifax, Experian, and TransUnion. To find out where the card reports your card usage, review the credit card's terms and disclosures.
• Rewards or perks: Many unsecured cards and some secured cards allow you to earn added rewards, such as 1% cash back on your purchases.
• Upgrade or credit limit reviews: Many credit card companies will automatically review your credit profile every three or six months. If you qualify, they will automatically upgrade a secured account to an unsecured account or increase the credit limit on an unsecured account.

FAQs

Bottom line

When it comes to secured vs. unsecured credit cards, no one card type is better than the other. Both cards have their uses, and which one is a better fit depends on your current financial situation. In general, if you're building or rebuilding credit, a secured credit card is a great starting point. If you have established credit, an unsecured card may give you more rewards and perks.

Regardless of which type of card you choose, using the credit card responsibly is key to maintaining strong credit. Keep your balances low, make your payments on time, and you'll be able to build a stronger financial future.

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Secured Self Visa^® Credit Card

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Current Offer

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Annual Fee

$25 (waived first year)

Benefits and Drawbacks

Benefits

• Accounts in good standing may be able to increase credit limit over time
• No hard credit check required
• Reports to the 3 major credit bureaus

Drawbacks

• No welcome bonus or spending rewards

Card Details

• $0 Intro annual fee for the first year, $25 thereafter ¹ <p class="">*Intro Offer - $0 annual fee for new customers for the first year only; $25 annually thereafter. Other fees apply. Variable APR of 27.49% based on the Prime Rate. Rate may vary.</p>
• No hard credit check or credit score required
• Reports to all 3 major credit bureaus to build credit history
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• Monitor your credit progress with free access to your Credit Score. Secure your credit line with a refundable security deposit - as low as $100.
• Use the secured Self Visa® Credit Card² <p element-id="429" class="">Self is not a bank. The secured Self Visa® Credit Card is issued by Lead Bank, Sunrise Banks, N.A., or First Century Bank, N.A., each Member FDIC. Security deposit is returned upon account closure after settling outstanding balances. Qualification for the secured Self Visa Credit Card is based on meeting eligibility, including income and expense requirements and establishment of minimum $100 security interest. Criteria subject to change</p> anywhere Visa is accepted-in the US
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