When it comes to credit cards, there are two main types: secured and unsecured. Understanding the difference between the two can help you make an informed decision about which type of credit card is right for you.
A secured credit card is a type of credit card that requires a cash deposit as collateral. The deposit acts as a security for the credit card issuer in case the cardholder is unable to make payments. The credit limit for a secured credit card is typically equal to the amount of the deposit.
For example, if you make a $500 deposit, your credit limit on a secured credit card will be $500. The credit card issuer will hold onto the deposit as long as you have the card, and it will be returned to you when you close the account or upgrade to an unsecured credit card.
On the other hand, an unsecured credit card does not require a deposit as collateral. Instead, the credit card issuer assesses the creditworthiness of the applicant and determines the credit limit based on factors such as credit score, income, and debt. Unsecured credit cards tend to have higher credit limits and may offer rewards and other perks, but they may also have higher interest rates and fees.
Secured credit cards are a good option for individuals with no credit history or poor credit, as they may have a harder time getting approved for an unsecured credit card. Secured credit cards can also be a good way to rebuild credit after bankruptcy or other financial hardship.
In summary, a secured credit card is a type of credit card that requires a cash deposit as collateral, while an unsecured credit card does not require a deposit and is based on the creditworthiness of the applicant. Both types of credit cards have their own advantages and disadvantages, so it’s important to carefully consider your financial situation and credit history before deciding which type of credit card is right for you.