Difference Between Secured & Unsecured Credit Cards
Unsecured and secured credit cards work much the same way when used for purchases. Unsecured cards offer purchasing power through credit, while secured credit cards rely on deposits to determine credit limits. But on the lender side, the two types of credit cards are very different. Both credit card options have benefits to buyers depending on current credit needs and past credit history.
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Secured Credit Cards
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Secured credit cards require a cash deposit to the lender in order to secure credit. The money is put into the credit account, and credit card holders may use all or a portion of the deposit when making purchases with the card.
Unsecured Credit Cards
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Unsecured credit cards are offered to individuals based upon current and past lending history. Unsecured cards require no deposit, and the lending limit on the card varies depending on credit reports acquired through major credit reporting agencies.
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No Credit or Bad Credit
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Individuals with no credit or bad credit are more apt to be offered secured credit cards as they may be considered a lending risk. Secured credit cards may also be used to establish credit when a person has no prior credit history.
Fees and APR's
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Some credit cards require a setup and/or a yearly fee. Secured credit cards are more likely to have these fees versus unsecured cards. The annual percentage rate (APR) on either card will depend upon a person's credit history, but secured cards generally have higher APR's than unsecured cards.
Warnings
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The Federal Trade Commission (FTC) advises individuals to evaluate credit card offers before committing so as to avoid scams and hidden fees. The FTC also advocates using credit cards responsibly to avoid unmanageable debt.
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