What is the difference between a secured credit card and an unsecured credit card?

A secured credit card and an unsecured credit card are two different types of credit cards. The main difference between them is the way in which they are issued. A secured credit card is one that is “secured” by a savings account or other collateral, such as a certificate of deposit (CD), money market, or personal account. These types of cards require the cardholder to provide a security deposit that is equal to, or greater than, the amount of credit available to them. Once the security deposit is in place, the cardholder can use the card for purchases and payments, just like any other type of credit card. On the other hand, an unsecured credit card does not require a security deposit. Instead, it is based purely on the creditworthiness of the cardholder. This means that banks will review the cardholder’s credit history, income and other factors to determine if the cardholder is a good risk and if they will be approved. In California, the law states that if a cardholder fails to make payments on a secured credit card, the card issuer can then take the security deposit and use it to cover the debt. With an unsecured credit card, the situation is different. If the cardholder fails to make payments, the card issuer cannot take the security deposit and must pursue other avenues for payment.

Related FAQs

What are the late payment fees for credit cards?
How do I choose the best credit card for my needs?
What is a cash-back credit card?
What is a fraud alert?
Do I have any recourse of action if a lender violates the Fair Credit Reporting Act?
What is a cash advance?
Are there any rules or regulations that apply to credit card companies?
How can I lower the interest rate on my credit card?
What is a balance transfer APR?
What is a credit report?

What is the difference between a secured credit card and an unsecured credit card?

Related FAQs

Related Blog Posts