What Is an Unsecured Credit Card?
Definition & Examples of Unsecured Credit Cards
An unsecured credit card is the most common type of credit card. It doesn't require a security deposit for approval.
Learn more about how unsecured credit cards work and how to qualify for one.
What Is an Unsecured Credit Card?
With an unsecured credit card, the issuer doesn't have a security deposit they can take if you don't pay your credit card balance. Instead, the creditor's options are to take further collection efforts. This includes reporting the delinquent balance to a credit bureau, referring your account to a third-party debt collector, suing you in court, or asking the court for permission to garnish your wages.
When people use the term credit card, they're usually referring to an unsecured credit card. That's because the vast majority of credit cards on the market today are unsecured.
How Unsecured Credit Cards Work
Most banks, credit unions, and other financial services providers offer unsecured credit cards. To get one, you must apply with your personal information and consent to a credit check. Once you're approved for an unsecured credit account, you'll get a card that you can use in stores, online, and over the phone for purchases.
Generally, to be approved for a credit card with a reasonable interest rate, you must have a good credit score (usually 670 and above). You may be able to get an unsecured card with a lower credit score, but you'll likely have to pay a higher interest rate.
Unsecured credit cards are a type of revolving credit. This means that you're approved to spend up to a certain limit on the account, and you can choose to either pay off the balance in full at the end of a monthly billing cycle, or revolve it to the next month.
When you pay your balance in full, then you don't have to pay interest on what you borrowed. When you choose to revolve the balance, you usually have to pay interest on it, and you have to make at least the required minimum payment each month.
Unsecured Credit Cards vs. Secured Credit Cards
Unlike unsecured credit cards, secured credit cards require you to pay a deposit as collateral against the credit line offered. You can think of it as a card that you fund yourself.
Issuers usually require a deposit on a credit if the applicant is generally considered a credit risk—meaning they have no credit history at all or a poor credit score (under 580). The credit card issuer has the right to take the deposit that you give in order to cover the debt incurred if you default on a balance.
In some cases, the cardholder may also need to pay an annual fee, as well. However, these cards aren't as likely to offer rewards programs in exchange for the fee, such as cash back or points toward purchases.
Unsecured Credit Cards
|Secured Credit Cards|
|Do not require a deposit for collateral||
Require a deposit for collateral
|Usually require a good credit score and credit history||Best for people with poor credit scores or no credit history|
|Often offer rewards programs||Don't usually offer rewards programs|
Advantages of Unsecured Credit Cards
Despite the potential legal hazard of having an unsecured credit card, most people would choose an unsecured credit card over a secured one because that means they don't have to pay out money in the beginning—money that could be in the bank earning interest. Additionally, unsecured credit cards typically have lower interest rates and offer rewards programs, features that are rare with a secured credit card.
How to Get an Unsecured Credit Card With Poor Credit
People with bad credit, no credit, or who have recently filed for bankruptcy will have the hardest time qualifying for an unsecured credit card. Most creditors see your shaky credit history as a risk that you may not be in a position to pay back what you borrow—even if you want to. Therefore, a secured credit card is your best bet for getting your credit back on track and qualifying for a better credit card once you're no longer viewed as a risk.
You can improve your chances of getting an unsecured credit card by using the secured credit card wisely for at least six months—which means not overspending. Also, you should pay off any past due amounts and reduce your balance as much as possible.
After using your credit card responsibly for several months, you may be able to convert to an unsecured credit card. If approved, your credit card issuer will refund the security deposit to you. However, you should be aware, it can take several months to be considered for an unsecured credit card.
Another option is getting a relative or friend to get a joint (unsecured) credit card with you. This will keep you from paying a security deposit and it gives you a chance to improve your credit score so you can be approved for a credit card on your own.
- An unsecured credit card doesn't require a deposit and is the most common type of credit card.
- You must apply for an unsecured credit card, and your approval will depend on your credit score and credit history.
- Secured credit cards are good for those who aren't approved for unsecured cards, but they don't offer as many advantages.