When people see an unsecured credit card, they wonder what the difference is between it and a secured credit card. These cards have many similarities, but there is one huge difference that most people must pay attention to before they apply for one or the other. It is a fact that a secured credit card requires the user to make a deposit with the credit card issuer.
What Is a Secured Credit Card?
In order to open a secured credit card account, consumers must offer the card issuer a refundable deposit. Then, the consumer can use the secured credit card as if it were a regular credit card. The card can be tapped, inserted or swiped everywhere that a traditional credit card can be tapped, inserted or swiped.
Whereas the credit card issuer will set the card holder’s credit limit, the credit limit for a secured credit card will be the amount of money that is on deposit. This offers the card issuer a measure of protection against default because the card issuer will be able to draw from the deposit in the event that the card’s owner defaults on the payments.
What Is the Purpose of a Secured Credit Card?
A secured credit card allows consumers without credit history or with a negative credit history to build or rebuild their credit histories. If the card’s owner uses the card responsibly, after some time passes, she may be able to qualify for a better credit card in the future.
What Is an Unsecured Card?
An unsecured card is one that consumers may qualify for without offering a deposit first. Apart from that one, there is absolutely no difference between these two cards. They can both be used to make purchases online and in the store, and the card issuer sends statements at the end of every month for both cards. If the owner of an unsecured card pays the minimum payment and leaves a balance, the credit card issuer will charge interest.
As far as interest is concerned, the interest rate for the unsecured credit card may be lower than the interest rate for the secured credit card. Unsecured cards may also charge fewer fees. Unsecured cards also offer consumers higher credit limits than they can obtain with a secured credit card, and this can lead consumers to better credit utilization ratios. Besides, as those at SoFi say, “sometimes, unsecured credit cards might offer perks, such as cash-back rewards and travel insurance.”
What Are the Advantages of a Secured Credit Card?
Secured credit cards have advantages for people without the best credit histories. For example, it’s hard to qualify for an unsecured credit card with a short credit history or low credit scores, but consumers can obtain secured credit cards with both of these attributes. It is also something that consumers can use to begin building their credit histories.
The best option for consumers with low credit scores is a secured credit card. A secured credit card costs them less money and helps them increase their financial standing. Those with limited, fair, good or excellent credit have the option to select an unsecured card.
