The credit card market in the United States is vast.
During your search for a suitable credit card, you’ll find offers for both secured and unsecured credit cards, but what are the main differences and which is right for you?
A secured credit means adding funds to a security deposit account.
The funds act as collateral for the payments that you make and it gives the credit card issuer an assurance that the funds are available. You’ll put a set amount of money into the secured deposit – usually $200 upwards. However, some secured credit cards accept a deposit of as little as $49. If you miss a payment, your credit card company will use the funds available in the security deposit to cover it.
Secured credit cards are sometimes used to establish a credit history, and it might be suitable for those with a poor credit record. However, as with unsecured credit cards, you’ll have to apply for one, and there’s no guarantee of acceptance.
These are usually given to customers with good credit history and a high credit score.
When you apply for an unsecured credit card, the card issuer will use your financial history and the other details you provide to determine your suitability; it will decline or approve your application based on this. Unlike secured credit cards, there is no need to put up collateral.
Depending on the credit card you choose, you can also qualify for rewards and a small amount of cashback on your purchases. In addition, if you make a purchase via credit card and the goods don’t arrive or not as described, then under certain circumstances, you can get the money refunded.
If you have a poor credit history, you could apply for a bad credit card, or a credit builder card that is also available on a unsecured basis, however, interest rates are high and can be up to 70 percent.
A secured credit card might be suitable for you if:
Although secured credit cards do have their advantages, there are some negatives to think about. The first is late payment and annual fees, although annual/late payment fees don’t apply to all secured cards. Moreover:
An unsecured credit card might not be suitable for you if:
Although an unsecured credit card can give you financial freedom, there are some negatives associated with them. Here are some of the main ones:
When choosing a credit card, never sign up to the first one you find: narrow it down to a choice of 3-4 and compare interest rates, terms etc. In addition:
Finding the right credit card for you can be a complex process. In addition to getting the best deals and reading the terms, you also need to find the card that is right for your personal circumstances, and for your attitude towards money.
Both secured credit and unsecured credit offer their pros and cons, and by gaining a better understanding of these, and learning more about their suitability for your circumstances, you can make a clearer decision over which card is right for you.