Secured Vs Unsecured Credit Cards: Which Should You Get First

**Secured vs Unsecured Credit Cards: Choosing the Right Path**

When it comes to opening a new credit card, many individuals are unsure which option is best: secured or unsecured. The difference between these two types of cards lies in their underlying concept, financial requirements, and fees.

**Unsecured Credit Cards**

An unsecured credit card allows you to borrow money without meeting the same security requirements as a secured card. You’ll need to have an existing credit history with a reputable lender, such as a bank or credit union, to qualify for an unsecured card. These cards typically offer higher credit limits and more generous spending limits compared to secured cards.

However, be aware that using an unsecured credit card comes with significant risks. If you default on payments, the creditor can report your debt to the three major credit bureaus (Experian, TransUnion, and Equifax), which may negatively impact your credit score.

**Secured Credit Cards**

A secured credit card requires a security deposit, typically equal to the credit limit you’re applying for. This deposit becomes collateral in case of default. Secured cards often have stricter requirements, such as good credit scores or stable income, and may charge higher fees compared to unsecured cards.

To illustrate the difference, consider the following examples:

* **Example 1:** A person with a decent credit score (660) applies for an unsecured $500 credit card from Bank of America. They pay off their balance in full each month, but eventually fall behind on payments. If they default, Bank of America can report this debt to the credit bureaus and may freeze their account.
* **Example 2:** A person with a poor credit history (450) applies for a secured $200 credit card from Capital One. They meet all requirements, including paying on time each month, but are still charged an annual fee.

**APR Figures**

The Annual Percentage Rate (APR) is the interest rate charged on your unsecured credit card. Here’s an example:

* **Example 1:** A person with a $500 unsecured credit card from Bank of America charges an APR of 18%. If they carry a balance of $200, their monthly payment would be around $33.
* **Example 2:** The same person from Capital One applies for the secured credit card mentioned earlier. They receive a higher introductory APR of 12% (0% for the first year), but this rate will revert to 18%