Having bad credit is challenging. A bad credit score can keep you from getting a mortgage, auto loan, or other financing options. Fortunately, there are ways to repair credit, with credit cards being a great first option. These choices include both secured and unsecured cards. But which is best for you? Between secured and unsecured credit cards: Here’s what you need to know.
Secured vs. Unsecured Credit Cards: What’s the Difference?
While unsecured and secured cards for bad credit are among the easiest credit cards to apply – and get approved – for, what exactly are they?
What is a Secured Credit Card?
Secured credit cards are one of the best options for people with bad credit. Secured cards require an initial cash deposit, which acts as security for the ability to pay with credit – hence the name “secured credit card”.
The deposit requirement also acts as the line of credit. If you deposit $200, you can expect a credit line of $200 in most cases. The more you deposit, the larger your credit limit.
Because these card types require a deposit, they often come without the need for a credit check. This means that when you apply for a secured credit card, there is no hard inquiry on your credit report. This, in turn, implies there is no negative impact on your credit score.
Beyond the initial deposit, secured cards act in the same way as any other credit card, meaning you can use them wherever their payment network (Visa, Mastercard, or Discover) is accepted.
What is an Unsecured Credit Card?
Unsecured cards differ from secured cards in that they do not require a depot. Unsecured credit cards are what comes to mind for most people when they hear the words “credit card.”
With unsecured cards, you apply and – if approved – get a line of credit you can use for purchases. Because the line of credit requires no security deposit, these types of credit cards do involve a credit check and a hard inquiry on your credit report. And, because they don’t need collateral, they may be harder to receive than a secured card.
Why Choose a Secured Card Over an Unsecured Card?
Secured cards are among the best credit cards for rebuilding bad credit. Secured offers are easy to get and offer a straightforward route to boosting your credit score.
Secured cards can sometimes feature a lower interest rate than unsecured cards for bad credit. These interest rates are also usually fixed, meaning they won’t fluctuate based on your creditworthiness.
Some cards, like the First Progress Platinum Prestige Mastercard® and the First Progress Platinum Select Mastercard®, have an APR that is comparable to those of the very best credit cards for people with excellent credit scores.
The Prestige, for instance, has an APR of just 9.99%, which is among the lowest among credit cards. While the card does charge a higher annual fee than some other secured cards, it is still lower than the fees that come with several unsecured cards. Those cards also feature higher interest rates.
The Platinum Select Secured Card has a slightly higher interest rate (13.99%) but a lower annual fee than the First Progress Prestige. The purchase APR with the Select is still well below the average APR for those with excellent credit, making it a great choice for those who want a low APR but not a high annual fee.
The Oakstone Platinum and Oakstone Gold Secured Mastercard® are two similar secured cards. The Platinum Card features the same great 9.99% APR as the Platinum Prestige – and the same $49 annual fee. Similarly, the Oakstone Gold features a 13.99% APR on purchases and a lower, $39 annual fee.
Perhaps the most popular secured card offer is the OpenSky Visa from Capital Bank. The card requires no credit check, features a modest $35 annual fee, and has a modest fixed APR. The real value with the OpenSky Secured Visa, however, is the access to an extensive Knowledge Base archive. This tool helps those with poor credit to gain financial confidence and boost their credit score with best practices.
In general, secured cards offer the following benefits vs unsecured credit cards:
- Lower annual fees
- Lower APR
- Easier to get than unsecured cards
- Some offer the chance to graduate to an unsecured card
Why Choose an Unsecured Card Over a Secured Card?
Unsecured credit cards are a great option for those who can’t afford the security deposit of a secured card – or prefer not to pay one.
Because unsecured credit cards are for people with bad credit scores, they typically have lower credit limits than other card types. Cards like the Total Visa come with an initial $300 credit line. While this may not seem impressive, it is a $300 line without the need for a deposit, meaning there is no out-of-pocket expense.
Other popular unsecured cards for bad credit include the Milestone Gold Mastercard, the Indigo Platinum Mastercard, and the First Access Solid Black Visa. These cards all offer reasonable credit limits, the chance at limit increases with on-time payments, and all the benefits that come with Visa or Mastercard products.
In general, unsecured cards offer the following benefits vs secured cards:
- No security deposit needed
- A chance at credit limit increases with on-time payments
- Variable APR
Other Unsecured Cards to Consider
A unique subset of unsecured cards for bad credit is what is known as “catalog cards.” These cards provide an unsecured credit line towards an online shopping portal. Catalog cards (or merchandise cards) are not accepted everywhere, like a Visa or Mastercard, but they can build credit with on-time payments and regular reporting to the major credit bureaus.
The Group One Platinum Card is the most popular of the catalog cards. It offers a $750 unsecured line of credit for use at the Horizon Outlet. The Horizon Outlet catalog is full of quality items, including home goods, toys, and fashion for men, women, and children.
The Group One Platinum is an excellent jumping-off point for those who don’t want a secured card but are unsure if they qualify for a regular unsecured card. Other Horizon Card Services products include:
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