Difference Between Unsecured And Secured Credit Cards

When looking into a credit card, secured credit cards as well as unsecured credit cards are going to be two choices that you have.  From some of the ads that you find, though, this can be a confusing choice.  What does this mean, and, most importantly, which is the right decision for you?  Take some time to analyze where you are and what your needs are and you will quickly see the reward in whichever line of credit you pursue.

The Difference

Understanding the difference between unsecured and secured credit cards is the first step in determining if they are something for you. 

Secured:  Like a home loan or your car loan, a secured credit card is one that is backed by something.  If you stopped paying your car loan, your home would be repossessed.  In many ways, a secured card is the same.  But, the difference here is that your possessions that you have purchased wouldn’t be taken back, but the funds that you have secured the card with would.  With a secured credit card, you will pay your full available credit up front instead of after you use it.  To keep using it, you will need to repay it again. 

For example, if you have a secured credit line of $200, when you open the account you will need to pay $200 (plus any fees applicable) to the lender.  This secures your account.  If you charge $50, you will need to pay at least a portion of the $50 back (with interest as determined by your lender.)  If you don’t pay back your loan in time, the original $200 that you invested is used to pay for your purchases. 

Unsecured:  Obviously, in an unsecured credit card, you don’t have to pay your credit limit right upfront as with the secured card.  You have the necessary credit score to provide the confidence to get the credit card in good faith.  Unsecured credit cards are not given to those that have very bad credit, but that doesn’t have to be a permanent situation.

Why Bother With Secured?

If you look at these options, you may be wondering just why you should bother with using a secured credit card.  The fact is that a secured card is one that provides a high level of benefit to several people.  If you have no credit history, this is a good way to get a foundation started.  Often, unsecured cards are not given to those that don’t have some credit history.  When this happens, getting a credit line that is secured will help to establish this necessary history.  To make this happen, insure that the credit line that you select is one that does report to your credit agencies each month.

Another reason to get a secured card is when you have bad credit.  Many people have found themselves in a situation where there credit is very bad, but they would like to have some emergency funds available to them if they do need to use them.  A secured credit card is a great way to make that happen as it will provide you with a way to put money away for those situations.  It can work in the same way, too, to rebuild your credit.  By using a secured line of credit wisely, paying down debts and keeping your credit reporting positive, you can rebuild your credit.

When selecting any credit card, look at what is being offered to you.

• What is the interest rate?
• Are there annual fees?
• What other fees are in place when opening the account?
• Does the secured credit card report to the credit agencies (a good thing when rebuilding credit) monthly?
• Is the cost of the unsecured and secured credit card worth the investment to you?

When you consider these things, you will quickly see that credit cards don’t have to be too hard to figure out.  In fact, selecting either a secured credit card or an unsecured credit card is partially a personal decision.  You have to decide how you will use your money as well as the trust that you can give yourself to make payments on time and to use funds wisely.