Credit cards come in two broad types: secured and unsecured. They look and work much the same at the checkout, but they're opened differently, and that difference shapes how much you can spend, what the card costs and who each type is usually built for. This guide walks through how each one works and what to compare before you apply.
This guide is for educational purposes only and isn't financial advice.
How a secured credit card works
A secured credit card asks you to put down a cash deposit when you open the account. The issuer holds that deposit as security for the account. In most cases the deposit sets or backs your credit limit, so a larger deposit often means a larger limit.
The deposit isn't a prepayment. You still get a monthly statement, you still owe at least the minimum payment, and you're still charged interest on any balance you carry past the due date. The deposit is there in case the account isn't paid; it's generally returned when you close the account in good standing or move to an unsecured card.
Secured cards are often used by people with a limited credit history or a lower score, because the deposit reduces the issuer's risk. Many issuers report secured card activity to the credit bureaus the same way they report other cards, which is why secured cards are a common way to start building a payment history. Check that a card reports to the bureaus before you apply.
How an unsecured credit card works
An unsecured card has no deposit. The issuer reviews your application, usually including your credit history, income and existing debts, and decides whether to open the account and what credit limit to set. Most cards people carry, including rewards and balance-transfer cards, are unsecured.
Because there's no deposit, the issuer relies entirely on its own review. That's why unsecured cards with more features are generally aimed at applicants with an established credit history. Each issuer sets its own criteria.
The deposit and the credit limit
For a secured card, ask:
- What's the smallest deposit the issuer accepts, and is there a maximum?
- Does the deposit equal the credit limit, or can the limit be different?
- When and how is the deposit returned?
For an unsecured card, the credit limit is set by the issuer and can change over time. A higher limit can make it easier to keep your balance low compared with the limit, which is one of the things that can affect credit scores.
Annual fees and other costs
Both types can carry an annual fee, and some secured cards charge one even though you've put down a deposit. Compare these before you apply:
- Annual fee: is there one, and is it charged up front?
- APR: the interest charged on balances you carry, and whether it's fixed or variable.
- Other fees: late payment, foreign transaction, cash advance and any account setup or monthly maintenance fees.
- Grace period: whether you can avoid interest by paying the full statement balance by the due date.
The least expensive card is usually the one whose fees you'd actually pay least, given how you plan to use it. If you plan to pay in full every month, the annual fee may matter more than the APR. If you might carry a balance, the APR matters more.
What to compare side by side
1. Upfront cash: the deposit for a secured card, plus any fee charged when the account opens.
2. Ongoing cost: the annual fee and the APR.
3. Reporting: whether the card reports to all three major credit bureaus.
4. Path forward: whether the issuer reviews secured accounts for a move to an unsecured card.
5. Terms you'd notice later: penalty APRs, fee changes and how the issuer handles a missed payment.
Moving from secured to unsecured
Some issuers periodically review secured accounts and may offer to move the account to an unsecured card and return the deposit. Others don't offer this, and you'd apply for a separate unsecured card instead. Either way, the issuer decides whether and when, based on its own criteria, such as your payment history on the account and your overall credit profile. Paying on time and keeping your balance low relative to your limit are habits that matter for any card.
Our guide on choosing a credit card by your credit score range covers how card types line up with different credit profiles, and how credit scores can affect the offers you see explains what issuers tend to look at.
Next steps
Lendara is a marketplace, not a lender or card issuer. Lendara receives compensation from partners, which may impact which offers appear and their order; we don't include all offers available. Card issuers make their own credit decisions and set their own criteria, credit limits, APRs and fees, which vary by applicant. Checking your options is free. Partners may run a soft or hard credit check depending on the offer; you'll see details before you apply. You can browse credit card options from participating issuers, including secured and unsecured cards.