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Secured vs Unsecured Credit Cards

secured vs unsecuredUnderstanding the basics about secured vs unsecured credit is crucial to better manage your finances. The types of credit impact your financial stability and health in numerous ways. 

Secured vs Unsecured Credit Cards

What is a secured credit card?

The biggest difference between a secured credit card and an unsecured credit card is that a secured credit card requires a security deposit.  You are more likely to get a secured credit card due to previous credit card debt. Your credit limit is usually, but not always equal to the size of your deposit.  The deposit is to ensure that the cardholders do not default on the consumer debt.

The issuer will only tap the deposit if the cardholders do not pay the bill.  Most secured credit cards have an annual fee without any extra benefits.  It is a powerful tool for rebuilding credit.  A suggestion is to use it sparingly for only one or two small purchases per month. Remember to pay the balance in full before the due date to prevent interest charges. By implementing this strategy you will improve your debt solution.  Also, you will improve your credit to move to an unsecured credit card.  At this time you can close or convert your secured card to an unsecured credit card. This is a better option for your credit score because it doesn’t require you to open a new account.

What is an unsecured credit card?

An unsecured credit card does not require a security deposit.  It is intended for individuals with good or excellent credit and may have little to no other credit card debt.   Many unsecured credit cards offer rewards programs, including cash back, miles and points.  Unsecured credit cards typically have lower interest rates.  An unsecured credit card is not secured with any collateral as a secured credit card is.

Customers typically qualify for unsecured credit cards based on their credit history, their financial strength, and their earnings potential.  If you default on payment from not managing your credit card debt, the credit card issuer can initiate collection efforts, including referring your account to a third party debt collector, or for serious default. Furthermore, the card issuer may take you to court or even garnishment of wages.

Not all cards are equal.  Be sure to read the fine print.

Take the time to shop around for both secured credit cards and unsecured credit cards.  Some cards are better than others. However, you need to be vigilant of hidden fees.  For unsecured credit cards be careful of teaser rates. This is when cards offer initial low rates that are appealing to people who carry a balance.  Some card issuers even carry 0% introductory offers.  Read the fine print to see how much the rate can rise to when the introductory period is over.  Whether you pay on time with either a secured credit card or an unsecured credit card has a big impact on your FICO credit score.  Always monitor your credit card statements each month to ensure that the charges are legitimate and you are not being assessed any fees.

Read the fine print to see how much the rate can rise to when the introductory period is over.  Whether you pay on time with either a secured credit card or an unsecured credit card has a big impact on your FICO credit score.  Always monitor your credit card statements each month to ensure that the charges are legitimate.

To speak to a credit counselor today about secured vs unsecured credit cards, call 800-769-3571.

Author Bio:

Donna Conley is the Vice President and has been with ACCC since 1993. As Vice President, Ms. Conley assists the Chief Executive Officer with the day to day operations and assists with the strategic planning and growth of the organization.

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