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The Debate: Secured Vs. Unsecured Credit Card

When looking for your first credit card, you might initially be overwhelmed by the number of options available to you. Rewards cards, travel cards, secured cards, and unsecured cards: you might not understand the difference. Precisely what is a secured credit card, and when should you choose it over an unsecured credit card?

Secured Credit Card Vs. Unsecured Credit Card: What’s The Difference?

Secured credit cards, like the Citi (NYSE: C) Secured Mastercard is a card that you have to put a security deposit down before you can access the money. The amount you initially put in usually dictates what your credit card limit will be.

If you default on your credit card bill, then that security deposit is used to cover it. However, if you continue to show a history of paying on time, the bank might return your security deposit back to you.

Unsecured credit cards don’t require a security deposit, but they do require the applicant to have at least a decent credit score. To qualify for a card that offers perks and rewards, usually an even better credit score is required.

What Secured And Unsecured Credit Cards Have In Common

The security deposit is the biggest difference between these two types of cards. Some secured and unsecured credit cards might require an annual fee, whereas others don’t.

Another similarity between these two cards is they both report your payment history to the three major credit scoring bureaus. Using either type of credit cards is a great way to build and improve credit, especially with on-time payments.

Why You Should Get A Secured Credit Card

Secured credit cards will be more accepting of people with low or no credit history. It can be a good starter card, and you might even be able to find a card that offers you rewards points or cashback. After a year of on-time payments, you can upgrade to an unsecured credit card that doesn't require a security deposit and offers better rewards.

A secured card might be a good option for someone who has money management issues and needs a lower credit limit to keep their spending in check. It can be a way to help you live within your means but still improve your credit score.

Why You Should Get An Unsecured Credit Card

For people with an established credit history and an above-average or good score, an unsecured credit card is often a better choice. It doesn't require a security deposit, and the interest rates offered are usually lower than on a secured credit card. Another bonus is your credit limit will also be higher. In addition, most credit cards will provide better rewards and lower fees.

If at all possible, go straight to using an unsecured credit card. If you can’t due to low or nonexistent credit, then a secured credit card is probably the right one for you.

MoneyLion has entered into a compensation arrangement with Benzinga under which MoneyLion pays a fee for marketing and advertising services. MoneyLion does not have editorial control over the content of this material.

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