There are many different types of credit cards out there. An unsecured card is one of them, so if you are in need of a new credit card, you might wonder if you should get this kind. It’s helpful to understand all you can about a secured credit card before signing up.
What is an Unsecured Credit Card?
An unsecured credit card is not uncommon. You can sign up for one without having to put up any of your own money as collateral on it. Because of this, unsecured credit cards are riskier for lenders.
A Secured credit card is your trump to getting an unsecured card. According to the professionals at SoFi, “if you make on-time payments and show a track record of responsible financial behavior, the credit card issuer might offer you an unsecured credit card.” That said, in order to really get the most out of an unsecured credit card, you should have a solid credit history and credit score. The credit card issuers want to know that you are a good candidate and are able to pay your bills on time.
Comparing Unsecured Credit Cards and Secured Cards
People with lower scores and poor histories are not the best candidates for unsecured credit cards because they are considered at higher risk for paying their monthly bills and spending within their credit utilization ratio. Instead, those users should opt for a secured credit card, which runs on a deposit of the individual’s own money. That deposit serves as collateral for the issuers in the event that the user defaults on paying a bill.
When comparing a secured vs unsecured credit card, you should consider your credit score and history or whether you are rebuilding your credit. Those who are new to credit may also get more benefits from a secured card to build their credit.
What are the Pros and Cons of an Unsecured Credit Card?
There are certain advantages you can enjoy from having an unsecured credit card. Those pros include the following:
- More choices: There’s a wider range of choices for unsecured credit cards compared with those that are secured. Student cards, rewards cards that offer cash back or other perks and travel cards are among them.
- No collateral needed: You don’t need to put collateral down on an unsecured credit card. Instead, your credit limit is determined by your creditworthiness.
- Lower interest rates and better rewards: Depending on the card you choose, you can get lower interest rates and better rewards from unsecured credit cards. Some also offer a 0% introductory APR.
- Few fees: Unsecured credit cards have few fees that can even be avoided based on how responsible a user you are with them.
The cons of unsecured credit cards include the following:
- Approval is harder: It’s more difficult to be approved for an unsecured card because you need a good credit score and history.
- Easy to overspend: For some, it could be too easy to overspend beyond your means when you have an unsecured credit card. Even if your credit limit is in the thousands of dollars range, that doesn’t mean you should spend up to or past that amount because you’re still responsible for paying off the bill at the end of the month.
Being smart with your finances as a whole can keep you responsible when you have an unsecured credit card. If you are disciplined and have a good credit history and score, you can manage very well.