Unsecured vs Secured Credit Card: Important Differences to Know
It used to be that getting a credit card was reserved for those with stable jobs and was considered a symbol of high social status. Thankfully, credit cards have now become much more accessible. This is primarily because issuers offer various types of cards; mainly unsecured and secured credit cards.
By assessing your financial profile, you can opt for the right card type and boost your approval likelihood. Knowing how secured and unsecured cards differ and the benefits they offer is essential to make the more suitable choice. Which you can, with this easy guide.
What is a Secured Credit Card?
When you offer collateral, generally a fixed deposit to get a card, it is known as a secured credit card. These cards are an excellent option if you need to build or enhance your credit history. The issuer doesn’t need to rely on your credit score as they have the deposit to recover the dues if you fail to pay on time.
Since the credit bureaus receive reports about your repayments, regular payments of your dues without fail will positively affect your credit history. The credit limit you get for these cards depends on the value of your fixed deposit investment. Generally, it is 90% of the deposit amount but many also offer up to 100%.
What is an Unsecured Credit Card?
Unsecured credit cards are more common and do not require any collateral as the issuers rely on your credit profile. With a strong financial profile, issuers will approve your application without any delays and vice-versa.
The approval for these cards and the credit limit that you will get also directly depends on your creditworthiness. They typically offer better benefits, rewards, lower fees, and interest rates than secured credit cards. You can also choose from several sub-types, such as:
- Rewards
- Cashback
- Travel
- Shopping
Advantages of Having a Secured Card
Given below are some of the benefits of having this card:
- You enjoy a straightforward and speedy approval process since the risk for the issuer is on the lower side.
- You continue earning interest on your fixed deposit investment since you do not need to break it to get the card.
- With these cards, you can build your credit history if you do not have a strong profile by repaying the dues before the due date.
- These cards can be used for various types of transactions and payments without worrying about the security factor.
Advantages of an Unsecured Credit Card
If you choose this card, you can enjoy the following perks:
- Unsecured credit cards do not require collateral upfront, allowing you to get the card without risking your assets.
- You can choose from a diverse selection of cards as per your needs such as petrol credit card, student credit cards and many more.
- Most unsecured credit cards offer better rewards such as cashback, reward points, discounts on purchases, etc.
Differences Between Secured and Unsecured Cards
While a secured and unsecured credit card allows you to carry out the same functions, they still have some major differences you need to know. The table below explains some of the most critical differences between these types of cards:
| Terms and Features | Unsecured credit cards | Secured credit cards |
| Deposit | You do not need to pledge your assets as security | You need to provide an asset such as a fixed deposit as a security |
| Credit Score Requirements | You need to have a good credit score of 750 or above to indicate strong creditworthiness | You can apply for a secured card without any credit history since the collateral acts as a security |
| Applicable Interest Rate | The interest rate is comparatively lower than that of secured cards | Issuers can levy a higher interest rate to cover the risk |
| Credit Limit | The credit limit directly depends on your creditworthiness | The credit limit depends on the value of the pledged fixed deposit |
Tips to Upgrade Secure Card to Unsecured Card
After using a secured card for some time and seeing an increase in your credit score, you might wonder if it’s time to switch to an unsecured card. You have two choices:
- You can close your secured card account and apply for a new one.
- You can ask your card issuer to transfer your secured card into an unsecured one.
Which is Better – a Secured Credit Card or Unsecured Credit Card?
You must consider their requirements and eligibility criteria when selecting a suitable option between the two. Apply for an unsecured card only if your credit score is high and your repayment record is spotless. Similarly, choosing a secured credit card is the best option if your credit history is not strong or if you are obtaining credit for the first time.
Regardless of which option you choose, you can opt for the One Credit Card. You can get a secured or unsecured version depending on your creditworthiness and enjoy a plethora of unique and essential features. These include rewards, fuel surcharge waivers, low foreign exchange fees, and virtual card benefits.
Additionally, it comes with a powerful mobile app that lets you apply for the card, track daily expenses, pay EMIs and much more. Apply now and enjoy the perks of a new-age lifetime-free credit card.