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Difference Between Secured and Unsecured Credit Cards
Posted on Monday, December 16th, 2024 | By IndusInd Bank
When you are planning to apply for a credit card, there is a list of factors that the credit card issuer will consider. Before they approve your application, they will look at your income level, repayment capacity, credit history, and so on. These aspects help the card issuer decide whether you will be a responsible credit cardholder.
However, what if you do not have a stable credit history? For such individuals, banks offer the option of a secured credit card, which requires a security deposit or asset of some kind, as opposed to unsecured cards. Wondering what the difference between a secured and an unsecured credit card is? Let us help.
What is a Secured Credit Card?
To understand secured vs unsecured credit cards better, we must first understand the former.
- A secured credit card is one which rarely requires a security deposit for approval. These cards are ideal for individuals with a low credit score or a poor credit history. Since these individuals may be perceived as high-risk in terms of credit, a security deposit can help lower the risk.
- Secured credit cards come with a pre-defined credit limit. This limit is often equivalent to the value of the deposit you have provided.
- The security deposit helps act as collateral for the credit card. In case of any defaults or late payments, the card issuer will have a security to fall back on.
- If you use your secured credit card responsibly, you can improve your credit score. This can allow you to upgrade to an unsecured credit card in the future.
Also Read: What Is a Credit Card Against Fixed Deposit?
What are Unsecured Credit Cards?
Now, let’s also understand unsecured credit cards.
- An unsecured credit card is one which usually does not require a security deposit. Most credit cards are unsecured.
- Banks issue unsecured credit cards based on the applicant’s creditworthiness, amongst other factors. If you have a good credit score and a stable credit history, you can apply for a card without providing security. This also means that a security deposit does not define your credit limit.
- Unsecured credit cards come with more features and benefits. This can include rewards, cashback offers, dining discounts, travel perks, and more. You must compare credit card options before applying for one to enjoy the benefits most suited to your lifestyle.
Now that you have understood the basic difference between the two, let’s explore secured versus unsecured credit cards further.
Key Differences Between Secured and Unsecured Credit Cards
Here are the main points of difference between secured and unsecured credit cards:
| Parameters | Secured Credit Cards | Unsecured Credit Cards |
| Collateral Requirement | Requires a security deposit which acts as collateral. | Requires no collateral; approval is based on your income and creditworthiness. |
| Eligibility Criteria | Easier criteria; can apply for one without a good credit score. | Need to have a good credit score/history and a decent level of income to get one. |
| Credit Limit | Credit limit is determined by the security deposit. | Higher credit limits, depending on the cardholder’s credit history and card usage behaviour. Timely payments can help increase the credit limit. |
| Benefits and Privileges | Come with limited benefits as the applicant is considered high-risk. | Better rewards structure and other perks, such as dining discounts, free movie tickets, and lounge access credit card benefits, amongst others. |
| Interest Rates | Can have lower interest rates because of the presence of a security deposit. | Potentially higher interest rates, depending on the bank and the applicant’s credit score. |
| Upgrade Options | With responsible usage, one can upgrade to an unsecured credit card with no need for collateral. | Can upgrade to a higher credit limit and a card with better features/perks. |
So, when comparing secured versus unsecured credit cards, one must keep the above points in mind.
If your credit history is not stable, you can reach out to a bank and apply for a secured card. However, make sure you have a financial plan in place. You must have the security deposit and the discipline to use the new credit card responsibly.
Conclusion
When trying to understand a secured vs unsecured credit card, it is crucial to know that the former is for those with poor credit histories. Unsecured credit cards do not require collateral, while secured cards do.
A secured credit card is an opportunity to build a new credit history and enjoy the benefits and perks that come with credit cards. To truly enjoy the most of what credit cards have to offer, consider applying for one with IndusInd Bank. With a simple application process, competitive interest rates, excellent rewards programs, and more, a Credit Card from IndusInd Bank is truly worthwhile!
So, why wait, apply now!
Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.
