The Difference between Unsecured and Secured Credit Cards

The basic difference between the two types is that an unsecured credit card does not require you to put up a security payment, deposit or collateral of any sort. Your qualification is usually based on your financial history and status and the issuing company’s determination of your ability and likelihood of making payments on time. The secured credit card does require a security deposit. This option is usually for people with imperfect credit histories or with credit and debt problems of substance. This generally means that secure credit cards can be expected to have relatively high interest rates.

UNSECURED CREDIT CARDS
Most companies will issue unsecured credit cards to credit worthy customers based on their credit history and earnings potential. VISA and MasterCard are the two most convenient major credit cards since they are accepted at most establishments. American Express is accepted at many businesses now and in many cases is considered a great travel and business card. Discover offers a variety of unsecured credit cards with emphasis on rewards programs, cash back and other incentives like low interest rates.

The requirements for qualification for a credit card differ from company to company, and within companies, different types of cards may be offered based on a customer’s financial details. It is common for companies to charge relatively high interest rates (some percentage over the prime rate) for customers without the most favorable qualities. A number of credit card companies are now charging no annual fees for credit card accounts and this seems to be spreading. A common marketing feature and incentive is the low introductory annual percentage rate which a number of companies will offer new customers. Customers must understand that these rates have limited duration and it is advisable to find out how long the introductory rates last until the fixed annual rate kicks in.

Keeping up with your payments is very, very important. The great risk of lax management of a credit card is that late payments can initiate a number of punitive fees which can cause interest rates to skyrocket. It is therefore crucial that you pay attention to deadlines and keep track of your account figures. Unsecured credit cards come with credit limits based on the type of account. The best qualified candidates receive the highest credit limits.

SECURED CREDIT CARDS

These cards require a deposit with the issuing bank. This amount, to secure a credit card, is usually only in the hundreds of dollars. It is held as collateral while the bank issues credit of some percentage of the deposited amount. In many cases, the card is reported to the credit bureaus as a normal credit card. This allows the cardholder to establish a positive credit history over the duration. Based on good payment history over an extended duration, some banks will then issue the customer an unsecured credit card. Secured credit cards are often a tool for debt consolidation and credit management programs.