Secured vs. unsecured credit cards: What’s the difference?

Whether you're new to credit or trying to rebuild after some bumps in the road, you've probably come across both secured and unsecured credit cards. The main difference between them comes down to one thing: a security deposit.

Here’s what to know about secured vs. unsecured credit cards, including how a security deposit works and how to decide which card makes sense for your situation.

Secured vs. unsecured credit cards: Key differences

A secured card requires you to put down cash as collateral before you can use it. In comparison, no deposit is needed for an unsecured card; the lender simply extends credit based on your creditworthiness.

Most unsecured cards are designed for people with established credit. However, some issuers do offer them to people with poor or limited credit history — just expect higher rates and fewer perks.

Also see: Secured vs. unsecured loans

Secured vs. unsecured credit card: Which should you choose?

The right choice comes down to where you are with your credit. If you're just getting started or trying to recover from past credit problems, a secured card is usually the easier path. The deposit lowers the lender's risk, which makes approval more accessible even if your credit score is low or nonexistent.

If you already have a good credit score, an unsecured card will typically get you better rates, higher limits, and more rewards without tying up cash in a deposit. That said, some issuers do offer unsecured cards to people with poor or no credit, so it's worth shopping around before assuming a secured card is your only option.

How secured and unsecured credit cards affect your credit score

For the most part, there's no difference in how secured and unsecured credit cards affect your credit score. However, there are some exceptions.

Payment history

Generally speaking, both secured and unsecured credit cards report your activity to the three major credit bureaus: Experian, Equifax, and TransUnion. That means every on-time payment — along with any that are missed — will show up on your credit report. Payment history is the single biggest factor in your credit score, so this is where responsible use really counts.

Credit utilization

Your credit utilization ratio is the percentage of your available credit you're using compared to your total limits. Keeping your utilization below 30% of your credit limit is usually a good rule of thumb; below 10% is even better.

This works exactly the same way for both secured and unsecured cards — though an unsecured card might be better for this your credit score if it offers a higher credit limit and allows you to keep your utilization at a lower percentage.

Credit building

Secured cards are specifically designed for people starting from scratch or recovering from credit problems. Because they're easier to qualify for, they're often the first step toward building a credit history that eventually opens the door to unsecured cards.

That said, unsecured cards can build your credit in the exact same way. Just be sure to focus on keeping your balance low and paying your bill on time and in full every month.

What is a secured credit card?

A secured credit card is a card that requires you to make a cash deposit upfront before you can use it. That deposit acts as collateral, protecting the card issuer if you don't pay your bill. In most cases, your deposit amount becomes your credit limit. For example, if you put down $300, you'll have a $300 credit line.

Once you've made the deposit, a secured card works just like any other credit card. You can use it to make purchases, you'll get a monthly statement, and you'll need to make at least the minimum payment each month. Interest will also apply if you carry a balance. You can typically get your deposit back when you close the account, but some cards offer deposit refunds with a record of responsible card use.

Secured cards are most commonly used by people with no credit history, limited credit history, or damaged credit who can't yet qualify for a traditional card.

Examples of secured credit cards

• Standard secured cards: These are no-frills cards with no rewards and no deposit flexibility. Your credit limit equals your deposit, which typically starts at $200. Examples include the OpenSky Secured Visa® and the Citi® Secured Mastercard®.
• Cards with flexible deposit requirements: Some issuers let certain applicants get a credit line with a lower deposit. For example, the Capital One Platinum Secured Credit Card might offer a $200 limit with a deposit of $49 or $99, based on your creditworthiness.
• Secured rewards credit cards: Some secured cards let you earn cash back or other rewards while you build credit. The Discover it® Secured Credit Card, for example, earns 5% cash back on everyday purchases in rotating categories (up to the quarterly maximum), then 1% back on all other purchases. With the Capital One Quicksilver Secured Credit Card, you get a flat 1.5% cash back on everything.
• Alternative secured credit cards: These cards work a little differently than traditional secured cards. The Chime Card, for example, requires no credit check, charges no interest, and lets you choose your own credit limit based on how much you move into a secured account, with no minimum deposit required.

Pros and cons of secured credit cards

What is an unsecured credit card?

An unsecured credit card is what most people picture when they think "credit card." Instead of requiring a deposit, the card issuer reviews your credit score and income to decide whether to approve you and how much credit to extend.

If you're approved, you get access to a revolving credit line up to your credit limit. You can spend up to that limit, pay it down, and borrow again. Unsecured cards tend to come with more perks — like rewards, cash back, travel benefits, and lower interest rates — but they're harder to qualify for if your credit isn't in good shape.

If you fall behind on payments, the issuer can't dip into a deposit to cover what you owe. Instead, they'll pursue collection efforts, which can seriously hurt your credit score.

Examples of unsecured credit cards

• Rewards cards: These cards earn points, miles, or cash back on purchases, and many require good to excellent credit. The Chase Freedom Unlimited®, for example, earns a minimum of 1.5% cash back on every purchase with no annual fee.
• Student cards: Designed for college students with limited credit history, student credit cards often have lower credit limits and more lenient approval standards. The Discover it® Student Cash Back card, for example, requires no credit score to apply and earns up to 5% cash back on rotating categories.
• Premium travel cards: These high-end cards come with travel perks, airport lounge access, and big sign-up bonuses. They usually require good or excellent credit. The American Express Platinum Card®, for example, offers thousands of dollars in annual perks but comes with an eye-watering $895 annual fee.
• Cards for fair credit: Some issuers offer unsecured cards for people with fair credit (generally scores in the 580 to 669 range), though these usually come with higher annual percentage rates (APRs) and fewer perks. The Capital One QuicksilverOne Cash Rewards Credit Card is one example, offering 1.5% cash back with a $39 annual fee.
• Cards for bad credit: A handful of issuers offer unsecured cards to people with poor credit (scores below 580). You can expect higher fees and limited perks in exchange for no deposit requirement. The Petal 1 Rise card is just one example.

Pros and cons of unsecured credit cards

Interest rates: Secured vs. unsecured credit cards

Interest rates are one area where the two card types differ meaningfully. Issuers see borrowers who need secured cards as higher risk, even with the deposit in place. Secured credit cards typically carry higher APRs because of this.

Unsecured credit cards have a wider range of APRs, which can vary depending on the type of credit card and your creditworthiness. For example, credit union credit card APRs max out at 18%. However, rewards credit cards from other card issuers can easily climb above 25% for borrowers with lower credit scores — closer to what secured cards charge.

The silver lining is that if you pay your bill in full each month and never carry a balance, your APR won’t matter too much. You'll never pay a dollar in interest regardless of the rate.

Borrowing limits: How much can you get?

With a secured card, your credit limit is almost always tied directly to your deposit. Most secured cards start at $200 and cap out around $2,500 to $5,000, depending on the issuer.

Some secured card issuers will also consider increasing your credit limit over time — either by letting you add to your deposit or reviewing your account for an upgrade after several months of on-time payments.

In comparison, unsecured cards offer much more wiggle room. Credit limits for unsecured cards can range from a few hundred dollars to $20,000 or more, depending on your income and credit history. The stronger your credit profile, the more you'll typically be approved for.

Find out: How to increase your credit limit

How to use a secured credit card to build credit

A secured card is only as useful as the habits you build with it. Here's how to make it work:

• Pay on time, every time. Payment history is the biggest factor in your credit score. Set up autopay for at least the minimum if you're worried about forgetting.
• Keep your balance low. Try to stay below 30% of your credit limit, and ideally below 10%. For example, if you have a $300 limit, you’ll want to keep your balance under $90 whenever possible. This might require you to use the card sparingly or make multiple payments throughout the month.
• Use the card regularly. You don't need to spend a lot to build a positive history. Small, recurring purchases that you pay off monthly show consistent, responsible use.
• Don't apply for too many cards at once. Each application triggers a hard inquiry on your credit report, which can temporarily lower your score.
• Monitor your credit score. Many card issuers offer free credit score access, so you can watch for improvements. Once your score climbs into “good” territory, you might be ready to apply for an unsecured card.
• Ask about upgrading. After six to 12 months of responsible use, ask your issuer whether you can graduate to an unsecured card. Some issuers might do this automatically.