What is the difference between a secured and an unsecured credit card?

Secured and unsecured credit cards are two distinct types of credit cards, each designed to cater to different financial situations and credit backgrounds. The main differences between them are:

• Collateral requirement: The primary difference between secured and unsecured credit cards is the collateral requirement. A secured credit card requires the cardholder to provide a security deposit upfront, which serves as collateral. This deposit typically determines the card's credit limit. In contrast, unsecured credit cards do not require a security deposit and are granted based on the cardholder's creditworthiness.

• Target audience: Secured credit cards are designed for individuals with limited or poor credit history, as they provide an opportunity to build or rebuild credit over time. Unsecured credit cards are geared toward individuals with established credit histories and generally require a fair to excellent credit score for approval.

• Credit limit: With a secured credit card, the credit limit is usually equal to or a percentage of the security deposit provided. Unsecured credit cards, however, have credit limits determined by the card issuer based on the applicant's credit history, income, and debt levels.

• Fees and interest rates: Secured credit cards may have higher fees and interest rates compared to unsecured cards, as they cater to individuals with higher credit risk. Unsecured cards, particularly those for applicants with excellent credit, often have more competitive rates and lower fees.

• Rewards and benefits: Unsecured credit cards typically offer various rewards programs, such as cashback, points, or travel miles, as well as additional benefits like purchase protection or travel insurance. Secured cards, on the other hand, generally have limited or no rewards and benefits.

Both secured and unsecured credit cards can help you build and maintain a positive credit history when used responsibly. Choosing the right card depends on your current financial situation, credit background, and financial goals.