Secured vs. Unsecured Credit Cards: Which One Do You Need?
Secured cards require a cash deposit that becomes your credit limit. Unsecured cards don't. Here's how each works, when to use which, and how to graduate from secured to unsecured.
Secured vs. Unsecured Credit Cards: Which One Do You Need?
A secured credit card requires you to put down a cash deposit — usually equal to your credit limit. An unsecured credit card doesn't require a deposit. Both are real credit cards that report to the credit bureaus and help you build a credit history.
If you're building credit from scratch or rebuilding after setbacks, a secured card is often the right starting point. If you have at least a fair credit score (580+), you can likely qualify for an unsecured card, though your options and terms will be limited until your score improves.
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How Secured Credit Cards Work
With a secured card, you deposit money with the card issuer — typically between $200 and $2,500. That deposit becomes your credit limit. If you deposit $500, you get a $500 credit limit.
The deposit serves as collateral. If you stop making payments, the issuer can apply your deposit to cover the debt. This reduced risk is why issuers can approve people with no credit history or damaged credit.
Key things to know:
- Your deposit is usually held in a separate account and returned when you close the card in good standing or graduate to an unsecured product
- Secured cards report to all three major credit bureaus just like unsecured cards — this is what builds your credit
- Interest rates on secured cards tend to be higher than unsecured cards (often 25–29% APR)
- Some secured cards charge annual fees; others don't
- Your spending behavior on the card affects your FICO score exactly the same way as any other card
How Unsecured Credit Cards Work
Unsecured cards don't require a deposit. The issuer extends credit based on your creditworthiness — your credit score, income, and credit history. If you can't pay, there's no deposit to seize; the issuer has to pursue collections.
Most of the credit cards you're familiar with — rewards cards, airline miles cards, cash-back cards — are unsecured. They offer better rates, higher limits, and more benefits than secured cards.
Side-by-Side Comparison
| Feature | Secured Card | Unsecured Card |
|---|---|---|
| Deposit required | Yes (usually $200–$2,500) | No |
| Who can qualify | Poor/no credit (300+) | Typically fair credit and above (580+) |
| Credit limit | Equals your deposit | Based on creditworthiness |
| Annual fees | Some charge fees; some don't | Varies widely |
| APR | Higher (often 25–29%) | Varies; rewards cards may charge more |
| Reports to bureaus | Yes, all three | Yes, all three |
| Benefits/rewards | Rarely | Common on mid-tier and premium cards |
| Credit building | Yes, identical mechanism | Yes |
When a Secured Card Makes Sense
Use a secured credit card if any of these apply:
- You have no credit history (no credit file or "thin file")
- Your credit score is below 580
- You've been denied for unsecured cards
- You're recovering from bankruptcy or serious delinquencies
- You want a dedicated credit-building tool with clear structure
The deposit requirement is not a punishment — it's what makes it possible for issuers to approve people who would otherwise be declined.
When to Choose an Unsecured Card
An unsecured card is the right choice if:
- Your score is 580 or above and you want to avoid tying up cash in a deposit
- You want to access rewards or cash-back programs
- You're looking for a card with lower interest rates
Be aware that unsecured cards for fair credit often come with higher fees and rates than the best rewards cards. An unsecured card for someone with a 600 score isn't the same product as one for someone with a 750 score.
How Secured Cards Build Your Credit Score
A secured card builds credit through the same mechanism as any other credit card:
- You use the card for purchases
- The issuer reports your account activity to Experian, TransUnion, and Equifax monthly
- FICO uses that data to calculate your score
What matters for building credit:
- Making on-time payments every month (payment history = 35% of FICO score)
- Keeping your utilization below 30% (amounts owed = 30% of FICO score) — on a $500 secured card, this means keeping your balance below $150
- Keeping the account open over time (length of credit history = 15% of FICO score)
A secured card used consistently for 12–24 months can bring someone with no credit history to the mid-600s to low-700s.
How to Graduate from Secured to Unsecured
Most major issuers have a graduation path. After 12–24 months of responsible use, many will:
- Automatically convert your secured card to an unsecured version
- Return your deposit
- Increase your credit limit
To maximize your chances of graduating:
- Pay on time every single month
- Keep your balance below 30% of your limit (ideally below 10%)
- Don't miss a payment
- Contact your issuer after 12 months and ask about graduation options
When you graduate, your credit history on that account carries over — you don't start from zero on the account age, which preserves the credit history you've built.
Frequently Asked Questions
Can I get a secured card with no credit score at all?
Yes. Secured cards are specifically designed for people with no credit history. Because your deposit secures the limit, issuers don't need a strong credit profile to approve you.
Do secured card deposits earn interest?
Some issuers hold your deposit in an interest-bearing savings account; others don't. Check the card agreement before applying. Either way, the deposit is returned when you close the account in good standing.
What if I want a higher limit on a secured card?
You can often increase your limit by adding to your deposit. Some issuers cap secured limits; others allow deposits up to $10,000 or more. If you need a higher limit for utilization management, ask your issuer about adding to your deposit.
Is a secured card the same as a prepaid debit card?
No. A prepaid card is not a credit card and does not report to credit bureaus or build credit. A secured credit card is a credit product that reports to all three bureaus. The two look similar from the outside but function completely differently.
Will closing my secured card hurt my credit?
It depends on your situation. Closing any card reduces your total available credit and can raise your utilization ratio. If it's your oldest account, it can eventually reduce your average account age. Generally, it's better to graduate the card to an unsecured product than to close it.
Are secured cards worth it if I have to pay an annual fee?
A secured card with an annual fee can still be worth it during the credit-building phase. The value isn't the card itself — it's the credit history you're building. That said, several secured cards have no annual fee, so compare options before committing to a fee-bearing card.
Sources
CreditFicoScores Editorial
Editorial Team
Our editorial team researches and fact-checks every article using official sources: FICO, the CFPB, the FTC, the Federal Reserve, and the three major credit bureaus. We never publish unverified data.
This content is for educational purposes only and does not constitute financial advice. Consult a qualified financial professional before making credit or financial decisions. See our financial disclaimer for details.