What Is an Unsecured Credit Card? Pros, Cons, Requirements, & Alternatives

Written By
Julija A.
Updated
May 06,2022

At a time when credit card balances are on the rise and Americans are binging on debt, not having to put up collateral is an increasingly cherished option. This is where unsecured credit cards come in.  

So, what is an unsecured credit card? In a nutshell, this type of card doesn’t require a security deposit for the money you borrow and offers a few additional perks. But to get approved, applicants generally need a decent credit score. The following guide breaks it all down. 

What Does an Unsecured Credit Card Mean to An Average Consumer?

Unlike secured credit cards, unsecured credit cards don’t require collateral. Instead, the bank, credit union, or another financial institution that offers this type of card requests your personal information, including details about your annual income. Furthermore, you’ll need to consent to a credit score check. The better the credit score, the better the offer. 

Most unsecured credit cards require a good to excellent credit score (670-850). Applicants who are eligible get lower interest rates and generous rewards. Some issuers offer cards for lower credit scores that sit in the 580-669 range, but the options become pretty limited once you dip below 580. 

Although unsecured credit cards for lower credit scores exist, the fees usually outweigh any benefits. In such cases, it is better to get a secured credit card dedicated to helping you rebuild your credit score with the possibility of upgrading to an unsecured one when you satisfy the issuer's requirements.

Secured vs. Unsecured Credit Card

The most significant difference between a secured and an unsecured credit card is that the latter doesn’t require a collateral deposit. Card issuers typically require a deposit from customers they consider a risk, which means anyone who doesn’t have a credit history or has a credit score below 670.

We’ve already touched on the fact that you can get unsecured credit cards with a poor credit score, but these usually come with high-interest rates and other hefty fees. 

Of course, none of this means that having an unsecured credit card translates into a risk-free way to free money. If you fail to pay your credit card balance, creditors can try to collect by suing you or asking the court for permission to garnish your wages. They also send reports to credit bureaus and can send your account to a third-party debt collector.

When it comes to the unsecured vs. secured credit card comparison, it’s also worth noting that the latter option rarely comes with any rewards. Moreover, the interest rate is higher, and some secured cards have an annual fee. 

At this point, you might be wondering why anyone would use a secured credit card. It’s because these cards are a powerful tool for effectively rebuilding your credit score and developing healthy spending habits. Don’t forget, when you cancel your secured credit card, you get your collateral deposit back. 

How to Get an Unsecured Credit Card

Applicants with a credit score of 670 and above will get approved for an unsecured credit card by almost any financial institution. For them, the biggest issue is picking the right credit card. Others will find themselves asking, what is the easiest unsecured credit card to get with bad credit? If you fall into this category, there are a few avenues to explore. 

One is to get a secured credit card and build or repair your credit score. This requires avoiding overspending and making regular and timely payments, which will improve your chances of getting an unsecured card down the road. Many card issuers offer an upgrade from a secured to an unsecured credit card, but the process can take several months.

Some financial institutions offer both a secured and an unsecured credit card to applicants who are looking to build up or repair their credit score. But in those instances, the secured and unsecured cards come with annual fees and few to no rewards. 

Another route for those with a bad credit score is to become an authorized user on someone else’s account with good standing. The authorized user isn’t the primary account holder and isn’t responsible for making payments and, as such, doesn’t need the same credit score requirements.

This isn’t meant to be a loophole in the system. It is simply a way to build up your credit score until you become eligible for an unsecured credit card. Just make sure that the bank reports authorized user activity to the credit bureaus. 

Unsecured Credit Card Rewards

Another notable difference between secured and unsecured credit cards is the rewards system. Unsecured credit cards provide better rewards. The rewards come in various forms, but most can be placed in one of three categories: miles, cash, and points. 

Travel Rewards

The more money you spend on traveling, the more frequent flier miles you get. The number of miles needed to secure rewards varies depending on the card. But the points and miles earned will typically enable you to reduce the cost of travel and add a few additional benefits, such as access to the airport lounge. 

Most credit card issuers won’t allow you to transfer miles between programs but will allow you to convert them. So, rather than focusing solely on what unsecured credit card is the easiest to get, make sure you review the selection of perks that are being offered.  

Cash Back

The term might be misleading since, in most cases, it doesn’t lead to cold, hard cash in your hand. But this reward program enables you to redeem a percentage of the money spent on eligible purchases. Some issuers will give you the option to choose the categories where you wish to earn cash back, including dining, gasoline purchases, and groceries.  

Business Card Rewards

Business credit cards typically offer generous rewards in the form of sign-up bonuses, cash back on daily purchases, and even expense tracking features. Some rewards programs cover everything from frequent flier miles to gift cards. In addition, most of these cards don’t come with annual or foreign transaction fees. 

Pros and Cons of an Unsecured Credit Card

When it comes to the secured credit cards vs. unsecured credit cards showdown, it’s almost immediately evident that unsecured cards offer more perks if you have the required credit score. But before you pull the trigger on an unsecured card, it’s important to weigh the pros and cons. 

Pros  

  • Few or no fees: Most unsecured credit cards don’t have high fees and offer fantastic rewards. On the other hand, applicants with lower credit scores may have to pay more fees and are unlikely to get most of the rewards options. 
  • Rewards: Most cards come with well-rounded benefits and rewards programs that are unmatched by secured credit cards. Issuers offer more rewards to applicants with good or excellent credit scores. 
  • Lower interest rates: With unsecured cards, customers are approved to spend a certain amount of money during each billing cycle. Those who pay off their balance in full and on time aren’t charged any interest. But even if you carry the balance, the interest rates are reasonable as long as you have a good credit score. 
  • No collateral deposit: Your credit limit is based on your credit score, and you don’t have to put up collateral to get approved. 

Cons

  • Harder to get approved: Your eligibility for an unsecured card is determined by your credit score and credit history. As such, getting approved may be harder for those with lower credit scores, especially if they wish to enjoy some of the benefits. 
  • Easier to overspend: This goes for all credit cards. Credit cards don't mean you have free money. Anything spent needs to be paid back. Your credit score tells the card issuer whether you’re capable of regularly covering your balance. 

Bottom Line

For those trying to figure out what is an unsecured credit card, our guide is the perfect introduction to the world of rewards, low-interest rates, and no collateral options that are synonyms with these cards. In short, this is an everyday financial tool that can make your life easier.

FAQ

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

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The main difference is that an unsecured credit card doesn’t require a collateral deposit, while a secured credit card does.

How do unsecured credit cards work?

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Unsecured credit cards allow you to spend up to a specific limit on the account. As long as you pay your balance in full, you don’t have to pay interest.

What score do I need for an unsecured credit card?

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Most unsecured credit cards require a score between 670 and 799. Some cards are available to applicants with lower scores but require an annual fee and provide fewer benefits.

About author

Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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