Secured vs. Unsecured Credit Cards?

Q: Hey CreditCardGuru, is there ever an advantage of getting a secured credit card over one that’s unsecured? From what I understand an unsecured is always better. Would you agree?

A: Well generally I agree with your opinion. With a secured card, you need to put up a security deposit (which will equal your credit line) and as unappealing as that may sound, for some people it makes sense. Let’s do a match-up of secured vs. unsecured credit cards to compare and contrast them…

Fees?

As you know there are tons of no annual fee unsecured credit cards. However when it comes to secured, almost all of them have fees of some sort. For some it might just be a $20 annual fee but a few unscrupulous banks may charge you an annual fee + application fee + processing fee + customer service fee (crazy, huh?).

Winner: Unsecured credit cards, since so many of them are free.

Easy to get?

Most secured cards will approve anyone, so long as they are willing to pay the security deposit and any applicable fees. On the other hand, unsecured cards typically require (at the very minimum) a credit score in the mid 600’s and up. To qualify for the good reward cards, you may need to be in the 725 to 750 range.

Winner: Secured credit cards are definitely the easiest to get. That being said, it’s not always easy to come up with the cash needed for a security deposit.

Rewards?

The whole reason Credit Card Forum was founded was to create a gathering place for those obsessed with rewards, such as myself. Unfortunately, secured cards generally do not offer any type of points, cash back, or miles.

Winner: For rewards you will need an unsecured card.

Interest rates?

Ever since the Great Recession and the credit card reform, interest rates have risen across the board for everyone. Nowadays, an APR in the mid to high teens is the norm. Ironically, many secured cards have lower rates (even 0% on some) because your charges are backed in full by a security deposit.

Winner: For this one it’s a tie. Going with unsecured versus a secured card won’t necessarily mean a lower rate.

Customer service?

Of course service quality can vary greatly in this industry but one thing is for sure – secured cards are geared towards those with bad credit, so often times the issuers typically don’t care much about offering good service (because they know the cardholder with poor credit has limited options).

Winner: On average, unsecured credit cards are going to give you better service.

Benefits?

Unsecured versus secured credit card benefits? I think the answer to this one is a no brainer for everyone!

Winner: Almost any run of the mill unsecured card will probably offer more benefits than one that is secured. Even when you exclude the premium fee-based cards like AmEx Platinum, you can find tons of no annual fee cards like Chase Sapphire and Citi Dividend that offer a respectable amount of benefits free of charge.

Money management?

Having money management problems and unsecured cards can be a deadly combination. On the other hand, secured cards force you to live within your means, since you generally will be unable to spend beyond the amount of your security deposit.

Winner: For many people a secured credit card will be a smarter choice, despite the fact they will be missing out on rewards and benefits. Why? Well if it takes a secured card to keep your spending in check (and avoiding debt) then I would say you will be in a much better place.

Conclusion

If you have good credit and are disciplined with your money, then unsecured cards are clearly the way to go. However if you have bad credit and/or problems overspending, then a secured credit card may not be a bad idea.

Here is a listing of secured credit cards but as a better option, if you have at least a marginal credit score, then you may want to consider these entry-level unsecured cards.

List of available secured cards

IssuerSecured products available
Bank of AmericaBankAmericard Secured Card
Capital OneCapital One Secured MasterCard
CitiCiti Secured MasterCard
DiscoverDiscover it Secured Credit Card
PrimorPrimor Secured Visa Gold Card; Primor Secured Visa Classic Card
USAAUSAA Secured Card Platinum Visa; USAA Secured Card American Express
 
Comments
The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Nothing is more important then the security level. It’s the first thing what I check before choosing credit card is.

Thanks for the wealth of knowledge. I have a question I think I already know the answer to. With a person with no credit, it is best to start with a secured card in order to build up their credit, right?

I only get secured credit cards. Thanks for reassuring my decision!