Yes, an unsecured credit card can help you build credit if it's used responsibly. Unsecured cards typically report to the credit bureaus TransUnion, Experian, and Equifax on a monthly basis, so it’s important to always pay your bills on time and in full. This way you can avoid being charged with interest which is usually above-average for these types of cards. By avoiding interest charges, you’re less likely to rack up debt, which would eventually appear as a negative mark on your credit reports.
The easier and more affordable way to rebuild your credit is to apply for a secured credit card instead. Secured cards have lower APRs and require a refundable security deposit which also serves as your credit line. This won’t allow you to spend more than you can actually afford, making it a much safer alternative than unsecured credit cards.
The main difference between a secured credit card and an unsecured credit card is that secured cards require you to place a refundable security deposit when you open your account. Apart from this security deposit, there is no other difference between secured and unsecured credit cards. The amount of this deposit typically serves as the credit limit for the secured card, which means you have to pre-pay for purchases with a secured card. You’ll usually have to put down the deposit when you apply, and you’ll get it back when you close your account or upgrade to an unsecured credit card. Unsecured credit cards, on the other hand, give access to a credit line that isn’t “secured” with a deposit.… read full answer
There is no difference between secured and unsecured credit cards when it comes to building credit. All major secured cards report account information to the major credit bureaus on a monthly basis, just like unsecured cards. In fact, you can’t tell secured and unsecured cards apart on a credit report. So as long as you use either type of card responsibly, your credit score will improve.
Below, you can get a better feel for the differences and similarities between secured and unsecured credit cards by seeing how they compare in several important categories.
Secured vs. Unsecured Credit Cards: Key Differences
Unsecured for Bad Credit
Min. Credit Required
Up to $95
Min. Credit Limit
0% APR Available?
Approval Odds of Secured Credit Cards vs Unsecured Credit Cards
Secured credit cards are easier to get approved for than unsecured cards. Because you’re technically pre-funding your credit line with a secured credit card, you can’t spend more than you can afford to repay. The deposit is held in an account by the card issuer, so if you don’t pay your bills, the deposit is used to cover the cost. That’s why secured credit cards are able to offer nearly-guaranteed approval to people with bad credit, while charging very reasonable fees. That being said, secured credit cards are real credit cards – they have interest rates, and you have to pay your monthly bill on time.
In contrast, unsecured credit cards tend to be harder to get, because the card issuer takes on a lot more risk by extending an unsecured credit line. In other words, you can spend more on an unsecured card than you can afford to repay. There are unsecured credit cards for people of all credit levels, but if you have bad credit, you’re likely to pay high non-refundable fees for a very small line of unsecured credit.
Choosing Between Secured & Unsecured Credit Cards
Overall, the toughest decision between secured and unsecured credit cards comes when you have damaged credit. With bad credit, it’s harder to get approved for an unsecured credit card, and the unsecured options available to people with bad credit are far less attractive.
If you have limited, fair, good or excellent credit, you should be able to start with a solid unsecured card. If you’ve got bad credit and the flexibility to choose either a secured credit card or an unsecured one, always go secured. It will cost you a lot less in the long run and help you build credit just the same. You can check your credit score for free on WalletHub to see where you stand.
Secured credit cards do help build credit or rebuild credit, as all major secured cards report account information to at least one of the big three credit bureaus every month. That gives you the opportunity to add positive info to your credit report, which is the key to building credit. Whether the credit that you build with your secured card is good or bad depends on your ability to pay the bills on time. You can also build credit just by having a secured card open, even if you don’t use it to make purchases.… read full answer
If you use a secured credit card irresponsibly, maxing it out or missing payments, you’ll have negative information on your credit report. That can lead to a bad credit score. But on the flip side, responsible use of a secured card builds credit just as well as any unsecured card. The only difference between a secured card and an unsecured card is that secured cards require a security deposit and give you a credit limit equal to that deposit. Secured and unsecured cards look the same, both physically and on credit reports.
How Secured Cards Build Credit
All major secured credit cards report to 1-3 of the major credit bureaus on a monthly basis.
Secured credit cards report information about your payment history, balance, spending limit and more to the credit bureaus each month.
The information secured cards report to the bureaus contributes to your credit history.
Responsible use of a secured card results in positive information being reported, helping to cover up past mistakes or build out a thin file.
The key to building credit with a secured card is to never miss a due date, or to just never use your card. As long as your account is open and in good standing, you’re in good shape.
Keeping your statement balance below 30% of your credit limit will help you build credit faster with a secured card.
Secured cards are the best credit cards to use if building credit is your main objective. And they’re particularly useful for rebuilding credit after mistakes. Not only do secured cards report to the credit bureaus, but they also approve even applicants with bad credit. Some don’t even do a credit check. And secured cards are known for low fees. The high approval odds and low fees are all because of the refundable security deposit.
But just because all major secured credit cards can help you build credit does not mean they’re equally attractive. They differ in several important areas, including their annual fees, minimum deposit requirements and rewards. It’s important to shop around and pick the best card for you.
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