What is an unsecured credit card?

5 min read

Credit cards are pretty standard fixtures in modern day life. When people talk about credit cards, they are most often referring to unsecured credit cards, meaning you don’t have to put up any collateral, such as a deposit, to get approved.

What does “unsecured credit card” mean?

When you apply for an unsecured credit card, the credit card issuer will use your personal information, such as annual income, along with your credit score to determine your eligibility. Because unsecured credit cards aren’t backed by any kind of deposit, like a secured card is, your card issuer won’t have access to funds to handle any unpaid debt you have on your account. This is why issuers consider a number of factors to determine the likelihood you’ll be able to pay off the charges you put on your card before they approve an application.

What’s the difference between a secured and unsecured credit card?

Most credit cards on the market are unsecured credit cards. An unsecured credit card extends you a line of credit that you can draw on and then pay off, or make payments on, each month. Your eligibility and credit limit for an unsecured credit card are based on the issuer’s determination of whether you’ll be able to make appropriate payments on any balances you have on your card.

A secured card, on the other hand, will require you to make a deposit in order to establish a line of credit. These cards will have “secured” in the name. For most issuers, your deposit is generally the same amount as your available credit. So if you put down a $500 deposit, you’ll have access to $500 of credit.

Secured credit cards can help people just starting out with credit to build up a credit score to become eligible for an unsecured credit card. They can also help people with low credit scores rebuild their credit. However, not all issuers report secured credit cards to credit bureaus, so check with your issuer before applying if you intend to use a secured card to build credit. Because secured credit cards work in a similar way to debit cards, they can also be helpful for people who want to build credit without accumulating any debt on borrowed funds.

While there are benefits and drawbacks to both kinds of cards, most people prefer unsecured cards. The fact that a secured credit card requires a deposit can defeat the purpose of applying for a credit card in the first place. Secured credit cards can also be limited in the returns they offer to their card holders — they rarely offer rewards and can come with some added fees. Interest is also usually higher on a secured credit card. If you are trying to decide which card will be the best choice for your financial needs, it is best to do a bit of research and compare your options between the two.

What are the benefits of using an unsecured credit card?

Using an unsecured credit card can have a variety of advantages. The biggest advantage being that you simply have more options to choose from. Unsecured credit cards can range from student cards to travel rewards cards to cash back cards and more. It is a pretty sure bet that you will be able to find an unsecured credit card that will help you achieve your spending goals.

Another advantage of an unsecured credit card is that you will likely have fewer fees to deal with. There are a variety of unsecured credit cards that have no annual fee, and many also have no foreign transaction fees. Fees and rewards aside, many unsecured credit cards offer some very nice introductory offers to attract applicants, giving opportunities to earn bonus miles, points and cash back. And in addition to that, you may also have the option of a zero percent APR period, meaning you can make interest free purchases during an introductory period before the regular APR kicks in.

How do you get an unsecured credit card?

Applying for an unsecured credit card is pretty easy. Once you decide what credit card you want, you can submit your application online. Depending on the card, you may know about approval within minutes. However, getting to that approval stage does require a bit of legwork on your part. For starters, it’s important to know your credit score to be able to choose a credit card within your score range. Bankrate offers a free credit reporting tool that can help you with that. You’ll also want to have a look at a variety of cards to decide which one is the best fit for your spending goals and needs. Once you’ve narrowed it down, you can simply go to the card issuer’s site to submit your application. Once approved, it usually takes around ten business days for your new card to arrive in the mail.

What credit score do you need for an unsecured credit card?

An unsecured credit card uses your credit score to help determine if you are capable of handling credit and payments responsibly. The stronger your credit score, the more options you will have for unsecured credit cards. Most unsecured credit cards require credit in the good to excellent range (670 – 850). This range is where you’ll become eligible for many different kinds of rewards cards. You can also find some cards that will accept a score in the fair to good range (580 – 669). Once your score dips below 580, your options become much more limited. While you can still find unsecured cards, you will likely have to pay more fees and likely won’t get the same kinds of rewards options.

How do you get an unsecured credit card with a bad credit score?

If your credit score is on the lower end of the scoring range, you have a higher chance of getting a credit card if you apply for one that allows for a lower credit score. For example, the Total Visa® Unsecured Credit Card is open to applicants that have struggled with credit or have no credit history at all.

Another way to get an unsecured credit card with a bad credit score is to become an authorized user on someone else’s account. Authorized users don’t have to meet the same credit score qualifications as primary cardholders because they aren’t responsible for making payments on the credit card account. Despite not having any legal responsibility for paying on the credit card they are authorized to use, authorized users can reap the benefits of card activity on their credit scores. You just have to make sure that the card issuer includes authorized users in their reporting. So, as an authorized user you can have access to a credit card and build up your credit score at the same time.

One final thing you can do to get an unsecured credit card with a bad credit score is to simply work to improve your credit score. One way to do that is by applying for a secured credit card. Using a secured credit card for small purchases and paying your balance in full each month is a great way to establish a reliable payment history and increase your credit score. Another thing you can do to increase your credit score is to sign up for Experian Boost. Experian Boost is a free program that gives you the ability to include your regular payments for things like your cell phone and your rent into your payment history on your credit report.