There are numerous types of credit cards to choose from today: rewards credit cards, travel credit cards, cash-back credit cards and low-interest cards. Despite their differences when it comes to perks and rewards, all credit cards fall into one of two categories -- secured or unsecured.
If you have fair, good or excellent credit, you can generally apply for an unsecured (or what you might call a traditional) credit card, which tends to have better rewards, lower fees and higher credit limits. But if your credit score is poor, or if you don’t have much of a credit history, you’ll likely have to get started with a secured credit card. A secured credit card will give you the chance to build credit by requiring a security deposit upfront as collateral.
If you’re looking for a new credit card and wondering if you should opt for a secured card or an unsecured card, read on to find out how they compare and who they’re best for.
How is a secured credit card different from an unsecured credit card?
Unsecured credit cards are the most familiar type of credit card. Geared to consumers with fair to excellent credit, unsecured credit cards don’t require collateral to extend a line of credit to the borrower. Because unsecured credit cards are for those with more established credit, they tend to come with more perks and features compared to secured credit cards.
Secured credit cards, on the other hand, are for people who have limited credit, no credit or problems with their credit due to past financial circumstances. Instead of relying on your credit score, most secured cards are instead funded by a security deposit that might range from a couple hundred dollars to $5,000. This deposit often functions as your credit line -- so if you pay a $250 deposit, your credit line would equal $250. This upfront deposit lowers the card issuer’s risk. If you don’t make payments or can’t cover your balance, the issuer can keep the security deposit and cancel your account. Once you’ve paid off your balance in full or closed your account in good standing, you can upgrade to an unsecured card and your deposit will be refunded to you.
Secured and unsecured credit cards are both useful for making purchases and improving your credit with the right spending and payment habits. The chart below shows the major differences between these two card types.
| Secured credit cards | Unsecured credit cards | |
| Requires security deposit | Yes, typically $200 and up; this usually serves as your credit line | No |
| Credit score required | No credit or poor credit | Fair credit up to excellent credit |
| Helps build credit | Yes | Yes |
| Rewards potential | Can earn cash back or other rewards | Potential to earn lucrative cash back rates or travel rewards |
| Cardholder benefits | Minimal benefits, such as a free credit score | Can be exceptional, with some cards offering perks like airport lounge access and annual travel credits |
Should you choose an unsecured credit card over a secured credit card?
You might consider a secured credit card if you’re in one of the following situations.
- If you need to improve your credit: Secured cards help users build creditworthiness. When you pay your monthly balances early or by their due date, those on-time payments are reported to the three credit bureaus, which can help you improve your credit rating and allow you to graduate to a better credit card over time.
- If you have limited credit history: Consumers with limited credit or no credit may need to begin building credit with a secured card. Once you have a credit history and a solid track record of responsible use, you could move on to unsecured cards with greater perks and rewards.
If you have at minimum a fair credit score, meaning a FICO score between 580 and 669, you should try to get approved for an unsecured credit card first. If you have good credit (670 to 739), very good credit (740 to 799) or exceptional credit (800 and up), you’re more likely to be approved for a traditional credit card with better rewards, perks and features.
Can you upgrade your unsecured credit card?
Many secured credit cards offer a pathway to an unsecured credit card once your credit score is within an acceptable range. For example, you might be able to qualify for the unsecured version of the secured card you currently have if you make a number of on-time payments in a row and use your card responsibly.
The Discover it® Secured Credit Card* is one card that offers this pathway. Discover says your account will be automatically reviewed to see if you qualify for an unsecured card after seven months. If you do, you’ll get upgraded and receive your security deposit back. You won’t need a credit score to apply, and you can earn cash back rewards without an annual fee.
How to apply for a secured credit card
- Compare options to find the right one. Take the time to compare the best secured credit cards based on their rewards, benefits and fees. Also check for minimum security deposit requirements, and confirm if you’ll be given the option to upgrade to an unsecured credit card.
- Click where it says “apply now.” Once you find a secured card that fits your criteria, you can begin the application online. Typically, this process can be completed in as little as 10 minutes.
- Share your personal and financial details. During the application process, you’ll need to share your full name, address, date of birth, employment information, annual income, Social Security number and other sensitive details.
- Link a bank account to fund your security deposit. Your application will also ask for your bank account details in order to fund your initial security deposit. Make sure you have enough cash in the bank for the collateral you plan to put down, as this amount will be deducted from your bank balance.
The bottom line
If you want to get started building or rebuilding your credit profile, consider a secured credit card. In order for credit card issuers to approve your application, you’ll need to make a refundable cash deposit upfront as collateral, unlike with a traditional, or unsecured, credit card.
Secured cards are a low-risk way to improve your credit with very few requirements, serving as a temporary fix to get you back on your financial footing. Once you have moved into the fair or good credit range, you can cancel or upgrade your card and get your security deposit back.
*All information about the Discover it Secured Credit Card has been collected independently by CNET and has not been reviewed by the issuer.
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