What are the pros and cons of unsecured credit cards?

Unsecured credit cards offer several advantages over secured credit cards. For starters, unsecured credit cards do not require a security deposit as a collateral, as secured cards do. Plus, most unsecured cards provide better rewards in form of cash back, airline miles and hotel points.

Pros of Unsecured Credit Cards

1. No security deposit: Unsecured credit cards don’t require you to place a refundable security deposit when you open your account.
2. Provide a line of credit: Unsecured credit cards provide a line of credit by getting cardholders access to a predetermined amount of money that they can borrow.
3. Better rewards programs: Cardholders can enjoy various perks, such as cash back and travel rewards.

On the other hand, unsecured credit cards also have their downsides. They can be more difficult to obtain because the card issuer takes on greater risk by extending an unsecured credit line. Essentially, it allows the cardholder to spend more than they can afford to repay.

Cons of Unsecured Credit Cards

1. Higher approval criteria: They are harder to get approved for, since the lack of a security deposit exposes banks to potential losses and defaults
2. Risk of overspending: They enable you to spend beyond your means.

All factors considered, unsecured credit cards are typically considered better than secured credit cards because there’s no security deposit to put down. A secured card’s deposit is refundable, though, and both secured and unsecured credit cards will help you build credit if used responsibly. Therefore, whether you choose one or the other, avoid maxing it out, and pay the bill on time every month.

To learn more, you can check out our breakdown of the pros and cons of credit cards overall. Additionally, our guide of the biggest credit card mistakes and how to avoid them can be quite useful.