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Secured vs. Unsecured Credit Cards: What's the Difference?

Pull a credit card from your wallet and no one will be able to tell whether it's a secured or unsecured card. Both types of cards typically have the name of the credit card issuer, a 16-digit number, an expiration date, and a CVV number on the back to discourage credit card fraud.

But they are different in the way the accounts are established.

What is an unsecured credit card?


With an unsecured credit card, you apply to a financial institution for a credit card and are approved for a line of credit. You are approved for a line of credit for anywhere from a few hundred dollars up to $15,000, $20,000, or more. You agree to repay the issuer for any transactions under the credit card terms you've agreed to, which would include the interest rates, annual fees, monthly payments, and so on.

Your account is a form of revolving credit. In other words, you borrow against your credit line, pay it back, and then can borrow again.

And you receive this line of credit based on your credit history, and other important factors like your income and assets. You aren't required to deposit any money with the issuer as collateral for the unsecured credit card.

What is a secured credit card?

Play video TD cash secured

A secured card is a type of credit card that is backed by collateral from the cardholder. You must make a cash deposit, which could be in the form of a checking or savings account. The credit card issuer uses these funds as a security deposit for the credit card

The amount deposited typically determines your credit line, which could be from a few hundred dollars to a few thousand.

People with no or negative credit history can benefit from these cards. They might have just graduated from high school or college and haven't established a financial track record yet. The cards also are designed for people who may have negative credit history because they missed payments on other loans, have too much debt compared to their incomes, or made some other financial misstep.

What are the main differences between secured and unsecured credit cards?
  

Now let's put these types of cards side by side to make a credit card comparison.

  1. Deposits: As we noted earlier, an unsecured credit card doesn't require you to deposit money up front. A secured credit card requires a deposit of funds into a checking or savings account as collateral. 

  2. Credit score approvals: One of the differences between secured and unsecured cards is the credit score you need. The higher your score, the more likely it is that your credit card application will be approved. 

  1. Credit limits: With a secured card, your credit line will typically stretch only as far as your deposit, typically a few hundred dollars up to a few thousand dollars. If you pay off the full amount each time, you maintain your credit line at its original amount. If not, you will have less available for making purchases.

    Credit limits for unsecured cards tend to have a much higher range, depending on your credit history and financial resources. You might start out with a limit of a few thousand dollars but could gain approval for a higher credit limit after a year or two of responsible use. 

  2. Rewards and benefits: Unsecured credit cards typically offer more credit card benefits and rewards, including cash back, miles or points toward travel, and perks like gift cards or discounts with retailers.

    The credit card rewards that come with secured cards may include cash-back offers, but they likely will not be as generous as those that come with unsecured cards.

Building credit with secured and unsecured credit cards

Almost every aspect of your financial life is reported to the major credit bureaus—Experian™, TransUnion®, and Equifax®. Based on that information (including income and credit history), the credit bureaus issue a credit score—usually ranging from 300 (poor) to 850 (excellent or exceptional). These scores will help determine whether you can qualify for a credit card, the size of the credit limit, and the annual interest rate, or Annual Percentage Rate (APR), you will pay.

Both secured and unsecured credit cards can help you build up your credit. If you are looking to establish or improve credit history, a secured card can be a good option. Some card issuers may automatically offer an upgrade to unsecured cards once you've met their requirements for the upgrade based on responsible use of the credit card.

If you have some positive credit history, you may qualify for an unsecured card, but the same rules apply. Stay well within your credit limit and always pay on time, and you could improve your credit history.

How to choose between a secured and unsecured credit card  
 

Before you apply for a secured or unsecured credit card, there are some factors to consider for deciding which is right for you.

  1. Financial needs or goals. It's difficult to function in our economy without a credit history, which may factor into things like whether you can buy a car or rent an apartment. If the immediate need is to build (or rebuild) your credit history, consider a secured card. If you have a decent credit history and are looking for more flexibility in personal finance, an unsecured card could be the right choice.

  2. Fees, interest rates, and your odds for approval. High-end unsecured cards often have annual fees of $50, $100, or more, but many cards have no annual fees. You have to decide whether the rewards will outweigh the annual fee. Also, if you carry a balance, APR will you pay and how will that affect your monthly payments? A small difference in the APR could make a big difference in what you pay in interest over time. Remember that any credit card application will be recorded as a "hard inquiry" on your credit report, which may temporarily lower your credit score. Some issuers may offer a prequalification feature for their cards which you can use to determine whether you may qualify for one of their credit cards based on a basic review of your creditworthiness. This typically results in a "soft inquiry" which doesn't impact your credit score. 

  3. Perks, benefits, and rewards. Generous cash back or airline miles? Low APR introductory offer or balance transfer capability? Again, consider your lifestyle and financial needs when evaluating credit card offers. If you're applying for a secured card, ask whether the issuer will automatically upgrade to unsecured cards if you meet their upgrade criteria or if you have to apply for an unsecured card eventually.

Credit Cards offered at TD Bank

Your financial stability and credit history will be big factors in deciding whether a secured or unsecured credit card is best for you. Either way, TD Bank can provide you with great options.

  • TD Double UpSM Credit Card

    Earn 2% unlimited Cash Back—no rotating Spend Categories, no caps or limits 

  • TD Cash Credit Card

    Earn 3% and 2% Cash Back on your choice of Spend Categories.* Plus, you can switch your categories quarterly

  • TD FlexPay Credit Card

    0% intro APR* for first 18 billing cycles after account opening. After that, 18.24%-28.24% variable APR based on your creditworthiness

Credit Cards offered at TD Bank

Your financial stability and credit history will be big factors in deciding whether a secured or unsecured credit card is best for you. Either way, TD Bank can provide you with great options.

This article is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.

TD Double Up Credit Card
*Read important Credit Card Terms and Conditions for details about rates, fees, eligible purchases, balance transfers and rewards program rules. If you take advantage of a 0% introductory or promotional Annual Percentage Rate (APR) balance transfer offer and then use your Account to make new purchases, you can avoid paying interest on those new Purchases if you pay each month by the payment due date the “Payment to Avoid Purchase Interest” amount shown within the ‘Payment Information’ box on your account statement.

TD Cash Credit Card
*Read important terms and conditions for details about rates, fees, eligible purchases, balance transfers and rewards program rules. If you take advantage of a 0% introductory or promotional Annual Percentage Rate (APR) balance transfer offer and then use your Account to make new purchases, you can avoid paying interest on those new Purchases if you pay each month by the payment due date the “Payment to Avoid Purchase Interest” amount shown within the ‘Payment Information’ box on your account statement.

TD FlexPay Credit Card 
*Read important terms and conditions for details about rates, fees, balance transfer rules. If you take advantage of a 0% introductory or promotional Annual Percentage Rate (APR) balance transfer offer and then use your Account to make new purchases, you can avoid paying interest on those new Purchases if you pay each month by the payment due date the “Payment to Avoid Purchase Interest” amount shown within the ‘Payment Information’ box on your account statement.

TD Clear Visa Platinum Credit Card with a $1,000 Credit Limit 
*Read important terms and conditions for account details. The Clear Platinum Visa Credit Card with $1,000 Credit Limit has a $10 monthly membership fee. The monthly membership fee will be added to your monthly billing statement each month as a charge, whether or not you use your account, and applied against your available credit like other charges.

TD Clear Visa Platinum Credit Card with a $2,000 Credit Limit 
†Read important terms and conditions for account details. The Clear Platinum Visa Credit Card with $2,000 credit limit has a $20 monthly membership fee. The monthly membership fee will be added to your monthly billing statement each month as a charge, whether or not you use your account, and applied against your available credit like other charges.

TD First Class Visa Signature Credit Card
*Read important Credit Card Terms and Conditions for details about rates, fees, eligible purchases, balance transfers and rewards program rules. If you take advantage of a 0% introductory or promotional Annual Percentage Rate (APR) balance transfer offer and then use your Account to make new purchases, you can avoid paying interest on those new Purchases if you pay each month by the payment due date the “Payment to Avoid Purchase Interest” amount shown within the ‘Payment Information’ box on your account statement. 

1Bonus miles will be reflected on your credit card statement 6 to 8 weeks after a qualified first purchase and/or 6 to 8 weeks after $3,000 in total net eligible purchases made within the first 6 billing cycles of your credit card account opening date. This offer is non-transferable. This One-Time Bonus Offer is not available if you open an account in response to a different offer that you may receive from us or if you previously received a One-Time Bonus Offer on this account or any other account with us. Eligible purchases do not include purchases of any cash equivalents, money orders, and/or gift cards or reloading of gift cards. Groceries purchased from superstores and/or warehouse clubs may only earn 1 mile for each dollar spent.

TD Cash Secured Credit Card
*Read important Credit Card Terms and Conditions for details about rates, fees, eligible purchases, balance transfer and rewards program rules. Eligible purchases do not include purchases of any cash equivalents, money orders, and/or gift cards or reloading of gift cards.

TD Business Solutions Credit Card 
*Read important terms and conditions for details about rates, fees, eligible purchases, balance transfer and rewards program rules. The person applying for the account is individually liable for the payment of all balances on the account and all cards issued pursuant to this application.