Guide to Unsecured Credit Cards

Jason SteeleUpdated January 26, 2023

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When you’re looking for a new credit card, you may come across some terms you don’t recognize. For instance, what is an unsecured credit card? An unsecured credit card is actually the most common type of credit card. Since many of the credit cards on the market are unsecured, it's smart to understand how unsecured cards work.Read on to learn more about unsecured credit cards, their pros and cons, and whether an unsecured credit card is the best option for you.

What Is an Unsecured Credit Card?

So, what does the term unsecured credit card mean? An unsecured credit card doesn’t require a security deposit. The issuer provides you with a revolving line of credit that you use to charge purchases to the card. You make monthly payments on the card. You’ll need to qualify for an unsecured credit card. The card issuer will review your credit score, credit history, and personal information to determine whether to approve you and what your credit limit should be. These factors are based on how risky a borrower the issuer thinks you are.

How Unsecured Credit Cards Work

“Unsecured” is just one of the credit card terms you should familiarize yourself with to help understand how credit cards work.As mentioned, with an unsecured credit card, the credit card issuer approves you for a certain amount of credit. You use the card to make purchases, and you pay your credit card bill each month. If you pay the entire balance, you won’t be charged interest. But if you pay less than the full amount, you’ll have to pay interest on the remaining balance.

Pros and Cons of an Unsecured Credit Card

There are benefits and drawbacks to an unsecured credit card. One of the advantages is that it doesn’t require a deposit for collateral. Unsecured credit cards also tend to have lower interest rates than a secured credit card does, and they may sometimes offer a 0% introductory APR for a certain period of time. Unsecured credit cards may also come with rewards, such as the opportunity to earn points, miles, or cash back. And compared to secured credit cards, unsecured cards tend to have fewer fees, including foreign transaction fees and annual fees. However, it may be difficult to get approved for an unsecured credit card. Because you aren’t putting down collateral to back the card, you will likely need a strong credit history and a good credit score to qualify. Unsecured credit cards also generally have higher credit limits, which might tempt you to overspend.

Pros of an Unsecured Credit Card	Cons of an Unsecured Credit Card
• Doesn’t require a deposit for collateral	• Harder to get approved
• Lower interest rates	• Easy to spend beyond your means
• More likely to have rewards programs
• Fewer fees

Who Should Consider an Unsecured Card?

Before deciding whether to get an unsecured credit card, consider if it makes sense for you. If you have bad credit or a slim credit history, you may have a hard time getting approved for an unsecured credit card. For other consumers, an unsecured card may come with a number of perks. You might want to consider an unsecured credit card if you fall into one of the following categories:

Budgeters

People who are budget-conscious could be good candidates for an unsecured credit card because they are less likely to overspend, even if they are given a high line of credit. Responsible credit card use could be a good opportunity for you to earn rewards and save money on fees.

Frequent Travelers

Frequent travelers may benefit from an unsecured credit card, especially a travel credit card. While these cards often have high annual fees, you can typically earn miles or travel-related perks like free checked bags. They may also offer generous sign-up bonuses. Travel rewards cards often require good or excellent credit to qualify.

Business Owners

If you are a business owner, an unsecured business credit card could offer perks that make sense for you, including no foreign transaction fees if you travel for business, and rewards categories for things like shipping, advertising, or travel. These benefits vary by card. Business credit cards typically require good to excellent credit to qualify.

What Credit Score Do You Typically Need to Apply for an Unsecured Card?

You will likely need to have a good to excellent credit score to be approved for an unsecured credit card. However, if your credit card is in the fair to good range, you may be able to find some unsecured credit card options. In general, though, the stronger your credit score, the more unsecured credit cards you will have to choose from.

Applying for Unsecured Credit Cards: Tips & Requirements

Before applying for an unsecured credit card, review your credit report to make sure it’s accurate, and report any mistakes you find to the credit bureau. Use whatever credit you already have responsibly and pay your bills on time. Also, try to curtail the amount of debt you owe. Your credit utilization ratio may affect your credit score, and having less debt is better.When you’re ready to apply, you’ll want to make sure the card you choose accepts credit scores in your range. Shop around and compare credit cards to find the one best suited to your credit profile that offers the most beneficial rates, terms, and rewards.

Alternatives to Unsecured Credit Cards

If you don’t qualify for an unsecured credit card, there are several other options you can consider. For instance, if you have a bad credit score, you may want to check out the best “bad credit” cards to see if one of them makes sense for you. Another idea is to explore the best credit cards for people with poor credit. You may be able to find a card that helps you build credit. In addition, if you have a limited credit history, a secured credit card could be a good choice. One of the differences between a secured and unsecured credit card is that secured credit cards are generally easier to qualify for. That’s because these cards require a security deposit. The amount of money you put down for the deposit also acts as your credit limit. You may even be able to transition from a secured card to an unsecured card. Some of the top secured credit cards might approve you for an unsecured credit card after you’ve demonstrated responsible credit card use for a certain period of time. Finally, you could consider becoming an authorized user on a credit card account, like a relative’s account. As an authorized user, you aren’t responsible for making payments on the credit card, so you don’t have to have to meet a particular credit score. And as long as the primary cardholder has good or excellent credit and pays their bills responsibly, being an authorized user could help your credit over time.

The Takeaway

Unsecured credit cards have a host of possible benefits and rewards, and you don’t need to put down a security deposit to get one. You will, however, likely need a good to excellent credit score to qualify for an unsecured card with the best rates, terms, and rewards. But even if you have poor credit, or your credit history is slim, you may be able to find a card that works for you.As you’re exploring credit card options, Lantern can simplify the process. Our online marketplace makes it easy and fast to compare different cards. Just fill out one application and you’ll receive offers from multiple lenders all at once.

Frequently Asked Questions

What makes a credit card unsecured?

Are unsecured credit cards bad?

How long does it take for a secured credit card to become unsecured?

Photo credit: iStock/Prostock-Studio

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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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