There are a lot of different types of credit cards out there, and it can be hard to know which one is right for you.
One common type of card that you may have heard of is an unsecured credit card. But what exactly is an unsecured credit card? Are they good? And lastly, should you get one?
There are a lot of people out there that are struggling with their finances. They may have lost their job or had some other emergencies come up that has left them in a financial bind. In order to help people in these but also many more circumstances, many financial institutions offer these unsecured credit cards for covering the debt.
To put it simply, an unsecured credit card is the one that does not require any collateral in order to be approved. This can be a great option for people who may be looking into unsecured credit cards for individuals with bad credit scores, or who just may not have anything to put up for collateral.
The downside to these cards is that they often come with high-interest rates and fees. This is due to the fact that they are seen as a bigger risk from a lender’s perspective. In case you are not careful with your spending, you can quickly find yourself in debt due to the piling up of these missed interest payments.
There are many reasons as to why it is important to read the fine print before signing up for an unsecured credit card but keep in mind that you should always know what you are getting yourself into.
Nonetheless if used responsibly, an unsecured credit card can be a great tool to help you get back on your feet after experiencing financial difficulties. After we covered the basics, let’s explore the ins and outs of this payment method.
What Is an Unsecured Credit Card?
This credit card is a type of unsecured loan that does not require the cardholder to put down a security deposit. So, it makes unsecured cards more accessible to borrowers, but they should keep in mind that they will have a bit higher interest rates to cover.
An unsecured credit card is often used by people as a debt payment option, especially if they do not want to consolidate their loan or take a whole new one.
There are so many different scenarios where these cards are more suitable than any other available option. For example, unsecured credit cards are a popular choice among individuals with bad credit or those who have no credit history at all, as they can help build up a positive one.
However, there are also some drawbacks that users should be aware of before applying for an unsecured credit card.
How Do Unsecured Credit Cards Work?
They function much like any other card type you can get. The main difference is just the lack of any deposit to cover potential loss for the lender if something doesn’t go according to the plan.
The creditor needs to extend the credit line based on the cardholder’s credit history and ability to repay the debt. If this goes well, there is your card, which you can then go ahead and use for any purpose you may have in mind.
There are also unsecured business credit cards that can help you cover your business expenses and offer you a higher credit limit. Using an unsecured card responsibly can show creditors that you’re a low-risk borrower, which could lead to lower interest rates on future loans. This is the biggest benefit of these cards as they can help improve your credit score.
However, unsecured cards also tend to have higher interest rates than secured cards. So, if you carry a balance on your card, you could end up paying more in interest over time.
Additionally, many unsecured cards have annual fees, so be sure to read the fine print before signing up for one.
How to Get an Unsecured Credit Card
If you’re on the lookout for an unsecured credit card, you should know that many places offer them so take your time and review the offers carefully in order to secure the best one.
Once you find a card that fits your financial needs and has terms you’re comfortable with, it’s time to apply. When you apply for an unsecured credit card, the issuer will pull your credit report and score to see if you’re a good candidate for the card. This is not the only information your lender will look at, so even if your score is not that good, you still have a chance of securing the card.
As we already mentioned, the benefit of these cards is that they will improve your credit score if you use them responsibly. As long as you make your payments on time and keep your balance low, you’ll start to see the changes real soon. And as your score goes up, you’ll qualify for better offers with lower interest rates.
Now that we thoroughly covered what an unsecured credit card is and how to get one, let’s take a look at the best-unsecured credit cards for people with bad credit:
- Petal® 2 Visa® Credit Card
- Deserve® Pro Mastercard
- Capital One Platinum Credit Card
- Capital One QuicksilverOne Cash Rewards Credit Card
- Credit One Bank® Platinum Visa® for Rebuilding Credit
Unsecured Credit Cards: Pros and Cons
There are a few key pros and cons to unsecured credit cards that you should be aware of before making a decision about whether or not they’re the right choice for you.
On the plus side, unsecured credit cards don’t require any collateral, so they’re much easier to qualify for than secured credit cards. On the other hand, they typically come with higher interest rates than secured cards, so it’s important to keep your expenses in check.
Ultimately, the best way to decide if an unsecured credit card is right for you is to weigh the pros and cons carefully and make a decision based on your individual financial situation. Let’s take a more in-depth look at both of these sides so you can be well-informed on the topic.
- You don’t have to put down a deposit. This means that if you don’t have any savings or anything else to put down, you can still get an unsecured credit card.
- They often come with better rewards programs than secured cards. This means you can earn points or cash back on your purchases, which can help offset the cost of the card over time.
- They can help you build your credit history and improve your credit score if used responsibly.
- Typically have higher interest rates than secured cards, so you’ll need to be careful about carrying a balance.
- Annual fees can be high. To prevent getting negatively surprised down the road by these charges be sure to read the fine print before signing up for one of these cards.
Unsecured Credit Card vs. Secured Credit Card: What’s the Difference?
The two main types of credit cards are unsecured and secured.
We already covered all you need to know about an unsecured credit card so by now you already know that they are not backed by any collateral. A secured vs unsecured credit card, on the other hand, will need to be backed by a deposit that you make with the issuer.
Here are some other key differences between these two types:
- Unsecured cards are easier to qualify for because they don’t require a deposit.
- Secured cards can help you build or rebuild your credit score even quicker because they report to the major credit bureaus much more regularly.
- Unsecured cards typically have higher interest rates and fees.
- With a secured card, you’re limited to spending only what you have deposited. But, with an unsecured card, you can spend up to your predetermined credit limit.
In case you’re trying to decide between an unsecured and secured credit card, consider your financial situation and what type of card would best fit your needs. There is no one-size-fits-all solution to this so it would be impossible to say which card would be a better choice.
Who Are Unsecured Credit Cards For?
Most unsecured credit cards are advertised for people with good or excellent credit. But there are many options out there for people with fair or bad credit, too.
Unsecured cards can be great for people who want to build or rebuild their credit. And because you don’t have to put down a deposit, they can be a good option for people with limited funds.
But they do come with some risks. Because you don’t have to put down a deposit, the issuer can hold you responsible for the full balance if you don’t pay your bill on time. And if you default on your payments, the issuer can report that to the credit bureaus, which could damage your credit score even further.
If you’re thinking about getting an unsecured card, make sure you understand the risks and rewards before you apply.
Are Unsecured Credit Cards Worth It?
It is generally really hard to answer these questions with either yes or no. The answer will always depend on your financial situation.
If you have good credit, you might be able to get an unsecured credit card with a low APR and a decent credit limit. However, if you have bad credit, you’ll likely only be able to get an unsecured credit card with a high APR and a low credit limit.
But even with bad credit, they may be very well worth it as you can build your score just by using the card responsibly. Once your score is in better shape, there will be many more options for other cards or loans you can choose from.
While unsecured credit cards have their perks, you should consider the risks before signing up for one.
An unsecured credit card doesn’t require a deposit or collateral, which can make them appealing to people with bad credit. However, because there’s no deposit to secure the debt, they tend to have higher interest rates than secured cards.
Additionally, many unsecured credit cards come with annual fees and other charges that can add up quickly, but in many cases, they can be a great path to a better score.