Secured Credit Card vs. Unsecured Credit Card: Key Differences to Know

Q: What happens when a secured credit card becomes unsecured?

Once your credit improves, your card issuer may allow you to move from a secured card to an unsecured card without closing your original line of credit. When that happens, you can close your secured card account and receive a refund of your deposit. And with some card issuers, your existing account can be converted to an unsecured card, and your deposit refunded.

Q: Should your first credit card be secured or unsecured?

Deciding whether your first credit card should be a secured vs. unsecured credit card depends on a few factors. First, do you have the money for a security deposit? Also, is your credit score high enough to qualify for an unsecured credit card? Finally, think about what you want out of your first credit card (such as to earn rewards, to build your credit, etc.). You can check about getting pre-approved for a credit card to see which cards you may be approved for.

Q: Do secured cards build credit faster?

Secured cards may build credit faster than unsecured cards, since secured cards report to all three credit bureaus. However, some unsecured cards report to all three credit bureaus as well. The best way to build credit is by using your cards responsibly, paying off the balance each month and ensuring you understand how credit card payment works.

Secured Credit Card vs Unsecured Credit Card

Jason SteeleUpdated February 1, 2024

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Just by looks, it can be difficult or nearly impossible to tell the difference between secured credit cards and unsecured credit cards. However, there are a few key differences in functionality and eligibility between a secured credit card vs. unsecured card. This includes whether or not you need a security deposit, what credit score may be necessary to qualify and whether you'll earn rewards or benefits with your card.If you’ve been wondering what the difference between a secured and unsecured credit card is, read on to learn more.

What Is a Secured Credit Card?

Secured cards are a type of credit card that require the cardholder to make a refundable security deposit, which will generally range from $200 to $3,000. The security deposit typically becomes the amount of the card’s credit limit.Secured credit cards are often marketed toward people who want or need to build or rebuild their credit. They are often easier to get because the security deposit acts as a type of insurance for the card issuer in case the cardholder defaults on payments. If you are a responsible cardholder, you shouldn't have to worry about this though, since the security deposit is refundable when closing or upgrading your account.Recommended: Guide to Getting a Credit Card With No Credit

How Secured Credit Cards Work

Once you make the initial minimum security deposit, you can use your secured credit card in the same way that you would use any other credit card. Since your credit limit is often equal to the amount of your security deposit, secured credit cards often do not have very high credit limits. However, some cards let you deposit additional funds to your security deposit in order to increase your credit limit. The maximum amount of security deposit per card varies by secured card type. Some secured cards may even offer a higher credit limit without having to make an additional deposit. For example, your card may offer you a higher credit limit after you make the first five monthly payments on time.Just like with unsecured cards, your credit card activity with secured cards is reported to major consumer credit bureaus. While unsecured credit cards may not report your balance and payment activity to all of the major consumer credit, most unsecured cards report your balance and payment history to all three of them (Experian, Equifax and TransUnion).

Pros and Cons of Secured Credit Cards

Just like any card, there are advantages and drawbacks to using a secured credit card.Pros:

Secured cards are easy to qualify for, as long as you have the money for the security deposit, aren’t currently subject to bankruptcy proceedings and can verify your identity.
Secured cards are often less expensive than the unsecured credit cards that might otherwise be available to people with bad credit, which tend to have very high, non-refundable fees.
Secured credit card issuers report your balance and payment history to the three major consumer credit bureaus, so if you’re using your card responsibly, it will help build your credit.
Using a secured card can help prevent you from spending too much, since they often have a lower credit limit.

Cons:

Your money is tied up temporarily in the security deposit. While you get your security deposit back when you close or upgrade the account, that is money that you otherwise cannot use in the meantime.
Most secured cards do not earn points, miles or other rewards. However, there are some that offer cash back rewards.
Few secured cards offer additional benefits, such as travel insurance. However, there are some that do.

Recommended: Does Getting a New Credit Card Hurt Your Credit?

What Is an Unsecured Credit Card?

Any other credit card besides a secured one is considered an unsecured credit card. These are the cards you typically think of when you think about credit cards and about how credit cards work. An unsecured card does not require a minimum deposit, and the credit limit for an unsecured card is based on factors like your credit score and your credit history.

How Do Unsecured Credit Cards Work?

Besides the security deposit, there’s no difference in how secured and unsecured credit cards work. Just like a secured card, you use an unsecured card to complete purchases and make monthly payments toward the balance of your credit card statement.

Secured vs. Unsecured Credit Card: Which Is Better?

Determining if a secured card or an unsecured card is better is a personal decision. Consider the following features of each to decide which are most important to you.

	Unsecured Cards	Secured Cards
Security deposit	Not required	Required
Credit needed	Poor or fair	Very poor or nonexistent
Credit reporting	May report to one or more of the three credit bureaus	Reports to all three credit bureaus
Rewards	Varies depending on the card	Very limited or nonexistent

Choosing Between a Secured and Unsecured Card

When choosing between a secured card and an unsecured card, there are several things to consider, which we also cover in more depth in our tips on choosing a credit card. If you can’t spare any money for a security deposit, then a secured card is probably not a realistic option. Additionally, if you want a card that offers rewards, an unsecured card may be the better choice. Keep in mind, however, that you may need to have some credit history in order to qualify for an unsecured card.It is also important to compare cards’ annual and monthly fees, including foreign transaction fees, cash advance fees and late payment fees (if you’re unfamiliar, here’s a rundown on these important credit card terms). But if you have very poor credit, a secured card will likely be your best — and possibly only — option.

Compare Offers With Lantern

The first step in narrowing your search for a credit card will be to understand the difference between secured and unsecured credit cards and to decide which is better for you. From there, whether you’re opting for a secured or an unsecured card, you’ll want to do your research.Luckily, comparing credit cards is easy with Lantern. We make it easy to compare the important details about your different credit card options, from their fees to their APR to the credit score you may need to qualify.

Frequently Asked Questions

What happens when a secured credit card becomes unsecured?

Should your first credit card be secured or unsecured?

Do secured cards build credit faster?

Photo credit: iStock/Zinkevych

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About the Author

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.

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