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Unsecured credit cards, which don’t require a form of collateral, tend to be the most popular kind of credit card. In addition to helping you build credit, these cards often come with perks and benefits, such as cash back rewards or free travel insurance.
To decide if an unsecured credit card is right for your financial situation, read on. You’ll learn what an unsecured credit card is, how it works, and the pros and cons of using one.
Key Points
• Unsecured credit cards do not require collateral and provide a revolving line of credit up to an approved credit limit.
• Many unsecured credit cards offer rewards and benefits, such as cash back, travel perks, and purchase protections.
• Approval requirements, credit limits, fees, and annual percentage rates (APRs) vary by card issuer and your credit profile.
• Credit cards allow flexible borrowing as long as at least the minimum payment is made each billing cycle.
• Responsible use of an unsecured credit card can help you build credit and establish a positive payment history.
What Is an Unsecured Credit Card?
When you think of what a credit card is, you’re most likely thinking of an unsecured credit card. An unsecured credit card is a line of credit that gives cardholders the ability to use credit at their whim. In other words, as a cardholder, you can use your credit up to its limit and pay it off continuously, as long as the account remains open and in good standing. Unsecured credit cards get their name since they don’t require a deposit or collateral, unlike secured credit cards.
Depending on the credit card you qualify for, you might be able to receive some additional benefits and perks with an unsecured credit card, such as cash back rewards.
How Does an Unsecured Credit Card Work?
You’ll receive a credit limit when you open an unsecured credit card. Your credit limit is the maximum credit you can use on this account. You must pay at least the credit card minimum payment each billing cycle if you’ve used the card. Here are some points to know:
• Your monthly payment will vary depending on how much credit you used during that billing cycle (in fact, some months, you may even have a negative balance on your credit card).
• If you miss a monthly payment, you’ll likely have to pay a penalty or fee for the infraction.
• If you make only the minimum monthly payment, your remaining balance (plus accrued interest based on the APR on a credit card) will carry over until the next month.
So, to avoid penalties, fees, and accrued interest, it’s best to pay your balance in full every month.
But, if this isn’t feasible with your budget, aim to pay more than the minimum every month so you can quickly chip away at your total outstanding balance. Just be sure to keep in mind how credit cards work when deciding how much to pay in a given month.
Pros and Cons of Unsecured Credit Cards
Some of the benefits and drawbacks of unsecured credit cards may be obvious. But to help you determine the risks and rewards of using this type of credit card, here are some pros and cons to get familiar with.
Pros
Upsides of unsecured credit cards include:
• Higher credit limits: Applicants usually must have a competitive credit score to qualify for an unsecured credit card. For this reason, credit card companies may apply a higher credit card limit since you’ve proved your creditworthiness.
Also, having a higher credit limit can impact your credit utilization ratio, the amount of credit you use compared to the amount of credit you have available. Your credit utilization ratio is used to assess your credit score, and a higher ratio may negatively impact your score. With a higher amount of credit available, it’s easier to maintain a lower ratio.
• Potential to earn rewards: Many unsecured credit cards offer incentives, such as cash back or airline miles, to encourage cardholders to use their credit. They may also offer additional benefits, such as complimentary airport lounge access or hotel credits. So, when comparing your unsecured credit card options, be sure to look at all perks and rewards that may be offered.
• Frequent reporting of credit history to credit bureaus: Credit card issuers usually report your credit activity to the credit bureaus on a monthly basis.
Your credit usage is another factor used to determine your credit score, so these regular reports can help you assess how well you’re managing your credit. If you’re managing it well, you may build your credit score over time.
• Abundant options: Unsecured credit cards are the most popular type of credit card. Therefore, there’s a vast array of credit card options at your disposal. Because there are so many options, you’ll likely be able to find one that’s suitable for your needs.
Cons
While there are many advantages of using an unsecured card, some may come with some downsides, including:
• Varying approval requirements: Every credit card company usually has different credit card approval requirements, and you’ll generally need a higher score to qualify for an unsecured versus a secured credit card.
For example, some secured credit card requirements include a credit score of at least 580. Others may require a score of at least 670. Researching requirements beforehand can help you identify the top cards available that you can qualify for with your credit score.
• Extra fees: Some unsecured cards may come with extra fees, such as convenience fees, cash advance fees, or foreign transaction fees. Keep in mind that not all cards charge these fees, though, so it’s worth it to compare your options based on your needs. For example, if you travel abroad often, you may want to choose a card that doesn’t have foreign transaction fees.
| Pros | Cons |
|---|---|
| Higher credit limits | Potential for additional fees, such as convenience fees, balance transfer fees, or cash advance fees |
| Wide range of credit card options available | Different credit requirements for approval |
| Rewards such as cash back or miles | |
| Regular reporting to credit bureaus |
Unsecured vs Secured Credit Cards: What Are the Differences?
The most significant difference between unsecured versus secured credit cards is that secured cards require a deposit while unsecured cards don’t. Your deposit on a secured credit card usually dictates your credit limit. Depending on the credit card company and your credit score, your deposit may vary between $200 and $3,000, which is far lower than the average credit card limit.
Requiring a security deposit eliminates some of the creditors’ risks. Thus, it can be easier to qualify for a secured credit card than an unsecured credit card. Keep in mind, no matter what type of card you have, you’ll find more favorable terms if you have good credit, such as a good APR for a credit card. Also, you may have to forgo any rewards while you build your credit with a secured card, as they don’t often offer them.
If you fall behind on your payments, your creditor could cancel your card and send your remaining outstanding balance to a third-party collector regardless of whether you have an unsecured or a secured credit card. However, if you have a secured credit card and your payment is past due, your creditor may keep your security deposit to pay off some of the remaining balance.
Beyond these few items, there is no other real difference between the inner workings of a secured credit card and an unsecured credit card.
• Each card allows you to make purchases at locations that accept credit card payments.
• During the billing cycle, you must make at least a credit card minimum payment.
• Otherwise, you may have to pay fees or penalties with your secured or unsecured credit card.
| Secured Credit Card | Unsecured Credit Card | |
|---|---|---|
| Requires a refundable deposit | âś“ | X |
| Can qualify with poor credit | âś“ | âś“ |
| Can come with rewards | âś“ | âś“ |
| Requires at least a minimum payment every month | âś“ | âś“ |
| Can be used to make purchases | âś“ | âś“ |
Who Should Consider an Unsecured Credit Card?
Since there are plenty of unsecured credit card options available, they can suit the needs of many different types of consumers. If you’re in the market for a new credit card, here’s how to decide if an unsecured card is right for you.
The Budgeter
If you’re big on budgeting, you can use an unsecured credit card as a tool to help you as you make a budget and stick to it. Many credit issuers offer online statements or apps that can make it easy to track all of your spending right on your phone.
But, if you’re going to use your credit card for all of your spending, make sure to keep the interest in mind. While unsecured credit cards can help you budget, they can also hinder you if you get into the habit of overspending.
The Frequent Flyer
Do you love spending your time on the move? Many unsecured credit cards provide travel rewards that help you earn free travel experiences. For example, some cards can come with reward points or miles that you can use toward booking airfare or accommodations.
You may also receive additional perks, such as annual hotel credits, access to airport lounges, or discounts on flights when using miles.
The Business Owner
Unsecured credit cards are also useful for business owners. Business owners can capitalize on the perks of unsecured credit cards, such as rewards, sign-up bonuses, and other benefits. Also, an unsecured card can provide short-term funding for business growth. Plus, it can help businesses build credit for future financing endeavors.
Of course, benefits and terms will vary depending on the type of card you choose.
Typical Requirements to Apply for an Unsecured Credit Card
When you apply for an unsecured credit card, you must meet certain criteria to qualify. Some common requirements when applying for a credit card include:
• Be at least 21 years of age. While this is generally the age required to get a credit card independently, applicants who are at least 18 years old may qualify if they can demonstrate an independent ability to make payments.
• Provide proof of income to demonstrate you can make the minimum payments.
• Be a U.S. citizen or have the authority to work in the U.S.
• Have an acceptable credit score range per the lender’s requirements.
• Provide personal information such as your name, age, address, Social Security number, and more.
Keep in mind that all credit issuers have different criteria for approval. Some credit issuers may give you the option to pre-qualify. This way, you can see if you may qualify without submitting a hard inquiry on your credit, which can impact your credit score.
The Takeaway
Unsecured credit cards can come with many perks, such as earning cash back rewards and helping you build credit. But, before you apply for just any old card, make sure to compare your options, keeping the average credit card interest rate in mind, and understand the criteria for approval. Identifying an unsecured credit card that’s suitable for your needs might take a little time, but it’s worth it.
Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.
FAQ
Is it good to have an unsecured credit card?
If you can handle an unsecured credit card responsibly, it can help you build credit. Also, it can be a good way to receive additional benefits, such as cash back or other rewards, for completing your daily transactions.
What credit score do I need for an unsecured credit card?
Typically, if you have a credit score of 580 or less, credit issuers may be reluctant to approve your application. To qualify for the most competitive rates and offers, you typically want to have a credit score of 670 or higher.
How long before I can get an unsecured credit card?
If you’re working on building credit and don’t qualify for an unsecured credit card, you may have to start with a secured card. But the amount of time you must use your secured credit card before you graduate to an unsecured card can vary, sometimes only taking six or seven months. Ultimately, it will depend on factors such as your current credit score and the criteria of the unsecured credit card you’re applying for.
About the author
Ashley Kilroy
Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.
Photo credit: iStock/Zhonghui Bao
SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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