Many consumers have trouble determining the difference between secured and unsecured credit cards and what each have to offer in terms of risks versus benefits. There are some quite substantial differences between the two and by understanding these differences, you can more easily decide which is right for you.

What Are They?

For a non-secured credit card, you are not required to put up any form of collateral. A credit card company will approve you based on your credit and income. With a secured card, you must put up some form of collateral, such as money or a vehicle, in order to get approved.

Which Is Better?

People often make the mistake of thinking the only reason someone would apply for a secured card is if they have bad credit and have no other options. This is actually not the case.

Having a good credit rating means everything, especially in today’s world. You need good credit to take out a mortgage on a home, lease a vehicle, sometimes even get hired for a job. With a secured card, you never have that worry of whether you are going to fall behind and end up damaging your credit. Although you still have to ensure any required monthly payments are made on time, if you were ever to fall behind on bills and could not pay off the balance on your card, the company already has the money and could pay it off, leaving your credit untarnished. Secured cards are therefore much less of a risk and pose less of a threat to your ever important credit rating.

For people more concerned with using their credit card to build credit rather than spend money with it, the credit bureaus are able to see your credit card accounts but cannot see whether the cards you have are secured or non-secured. The only person who knows this is you so you can work on your credit and build a positive financial future for yourself securely, without them being any the wiser.

One of the advantages of a non-secured card is the interest rates are typically lower on these than on secured cards. Also, you can get accepted for the card right away without having to worry about taking a large lump sum of money out of your budget to cover the cost or putting up another form of collateral, as you would with a secured card.

The Bottom Line

If you do well with your finances and budgeting and feel positive you will never get behind and end up unable to pay your credit card bills, a non-secured card should work fine. If you are desperately trying to rebuild your credit or just want to stay on the safe side, opt for a secured credit card. Only you know the difference and you will feel less uneasy and at risk when spending on your card.

Always take time to review your options and compare rates between different lenders and types of cards before applying for any credit card.