There is quite a difference between secured and unsecured credit cards, which does not mean just the APR percentage. We will take a look at these differences as well as the pros and cons regarding the different types of credit cards.
Like all credit cards, the secured credit card can also be used as a tool for your future benefit. The difference is that this type of credit card may take some time for the benefits to show and to be utilized.
But, let’s take a look at these credit card types and see what the real differences are.
What is a Secured Credit Card?
Many people do not even know what a secured credit card is, so we will have a look at this type of card first. The following list shows the main features of a secured credit card.
- A secured credit requires a deposit of up to 200 percent of the credit limit on the card.
- You do not need to have any credit ranking to qualify for this type of security card.
- Most of the time, a monthly maintenance fee is to be paid to this account.
- A much higher APR is connected to this type of credit card.
- The deposit paid to the secured credit card is refundable when you close the card.
- You can make credit purchases of up to 90 percent of the deposit on this card.
Taking a look at these features will bring another question to mind, and that is: Is this card not just a normal debit card? It may seem like a valid question, but the answer is: no, it is not a normal debit card.
The main difference between a debit card and the secured credit card is the fact that this card will be reported to a credit bureau. So you must make sure when you apply for one of these cards, the issuer does report to all or some of the credit bureaus.
Benefits
Benefits of Secured Credit Cards
There are a number of benefits you can get when you apply for a secured credit card.
- The whole deposit paid to the secured credit card is refundable if you keep the card in good order and pay on time.
- This card will help build a good credit score and is ideal for those who are new to credit cards.
- Anybody can qualify for this credit card, even those with a bad credit record or someone with no credit score at all.
- This is the ideal credit card for those who want to repair their credit score after filing for bankruptcy.
Benefits of an Unsecured Credit Card
Unsecured credit cards come with quite a number of benefits to persuade people to make use of them.
- Better credit scores will make these cards come with much higher credit limits.
- A wide variety of credit cards with many different rewards to choose from.
- These types of cards will provide you with a wide range of rewards and benefits that can make these cards work for you.
- Lower interest rates are also one of the benefits you can get with these types of credit cards.
- Much lower as well as fewer monthly and annual fees are also connected to unsecured credit cards.
- All unsecured credit cards are reported to the credit bureau.
Cost
Cons of Secured Credit Cards
- Not all secured credit card issuers report to the credit bureau.
- There are no rewards or very few rewards connected to secured credit cards.
- With a secured credit card, you get low credit limits, and they are bound to the deposit amount.
- A deposit is required before you can get a credit card.
- There are quite a number of fees involved that are not refundable, and these fees might include annual and monthly fees.
- All monthly maintenance fees will lower your available credit level until they are paid.
Cons of Unsecured Credit Cards
- With unsecured credit cards, it all depends on your credit score, whether you qualify at all and what APR you may receive.
Applying for a Credit Card
When Should You Apply For a Secured Credit Card?
If you have a damaged credit record, you should apply for this type of credit card to repair your score.
All those who are new to credit cards should use this type of credit card to improve their credit record.
Tips When Applying for a Secured Credit Card
- When you are ready to apply for a secured credit card, make sure to do proper research about all the available issuers.
- Make sure the credit card issuer will report your card to any or all of the credit bureaus.
- You should make sure you will be able to afford the monthly fees involved with these credit cards.
- Use this type of card only if you can pay on time and in full every month.
- If you do not pay on time, you will pay interest on that amount, and these cards come with a much higher interest rate.
- Where normal unsecured credit cards come with an APR of around 17 percent, these cards come with an APR of 25 percent on average.
- You should treat the secured credit card just the same as an unsecured credit card, keep it current and pay on time.
- With a secured credit card, you can also apply online for it.
- You can later upgrade to an unsecured credit card, and your deposit will be refunded to you in full.
- When you want to upgrade to an unsecured credit card, make sure your credit score is more than 650.
- You should also have at least a year of this secured credit card under the belt before you apply for an unsecured credit card.
Summary
As you can see, there are significant differences between a secured and an unsecured credit card, but they need to be treated the same. The main reason for applying for an unsecured credit card is to build up a good credit score, so you must take good care of it.
A good credit score will be perfect for you in the future if you need to buy property, for instance.