Secured vs unsecured credit cards

One of the most easy to use and more important financial tools on the market are the credit cards. Credit cards address both people with good credit and bad credit, but different types are designed in order to fulfill different consumer needs. Credit cards divide into two major types: secured and unsecured credit cards. Both types can be used to pay for various purchases – goods or services. Also they both have credit limits and fees and costs involved in their use.

Secured credit-cards are typically used by people who need to rebuild a bad credit history. To apply for a secured credit card you have to make a security deposit, which will become your credit’s limit. This will cover the lender in case of unpaid bills and, in case of a default on the payments, the card issuer can recuperate his money from the deposit. Secured credit cards have low credit limits because the limit is based on the deposit and the majority of applicants cannot afford to make large deposits.

Unsecured credit cards are offered to people with good credit and don’t require a deposit. They are issued based on the borrower’s good history and his probability to repay. Defaulting on repayment can ruin a person’s credit. Credit limitations are calculated considering credit reports from the reporting agencies but they are usually higher than secured credit card limits. Unsecured credit cards are best suited for people who make their payments on time and are in general good at managing their debt.

The essential factor in applying for a credit card is the credit rating. This will be examined by the card issuer and the approval of your application depends of it,no matter if you apply for a secured or unsecured credit card. When deciding to use a credit card, you should be aware of all terms and conditions before applying. Try to make payments on time, accordingly to your contract and always keep an eye on your accounts.


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