In an increasingly digitizing and evolving market, credit cards have become more than just a tool. With most vendors accepting them and an increasing amount of business being done online, credit cards are becoming almost universal. In this NachoNacho article, we will be discussing the difference between a secured vs unsecured credit card.
What is a Secured Credit Card?
A secured credit card is a card that is backed by assets you provide through a security deposit that you make before you can use the card. This deposit can range from as low as the credit limit, to as high as twice that. If you have a secured credit card with a credit limit of $1000, the deposit could range from $1000 to $2000. Depositing money guarantees the credit lender that if you don’t make your credit payments, they can simply take the outstanding amount from your deposit. This makes getting an unsecured credit card extremely easy, as this method eliminates any risk taken on by the lender. Using these cards is a great idea to build credit, especially as a secured credit card is easier to obtain.
What is an Unsecured Credit Card?
An unsecured credit card is the same concept, without the requirement of the security deposit. The lack of security deposit however creates risk for the lenders, and as such is only usually given to individuals with a good credit score along with requirements of financial health. These credit cards are more popular and offer rewards such as introductory bonuses or frequent flyer miles. It can be worth it to switch to an unsecured credit card once you have accumulated a high enough credit score, as these rewards provided can be quite substantial. After using a secured credit card responsibly for around 12-24 months, your lender should offer you the use of an unsecured card.