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What is an Unsecured Credit Card and How Does it Work?

When you think of a typical credit card, like a Visa or MasterCard, chances are you're thinking about an unsecured card. About 98% of the credit cards issued by major financial institutions are unsecured, according to the Federal Reserve Bank of Philadelphia.† 

The rest are secured cards, which require the cardholder to provide a cash deposit in a deposit account as collateral for the credit card account to open the account and receive the card. The card issuer can keep the collateral if a customer does not make their payments or otherwise defaults on their debt. A secured credit card could be helpful for individuals with limited or no credit history looking to gain access to credit.

Unsecured credit cards don’t require a security deposit to act as collateral for the credit card account. The issuer—whether it's a bank, credit union, credit card company, or some other form of financial institution—looks at your credit history, income and several other factors to determine whether or not to approve you for a line of credit. 

How do unsecured credit cards work? 


Unsecured credit cards are a form of revolving credit. The account gives you an open line of credit from which you can borrow money, pay it back, either all at once or in monthly payments, and then borrow again.

As long as you're paying your bills on time and keep the account in good standing, you can keep borrowing against that line of credit over and over. 

Unsecured credit card benefits
 

Credit cards can come with a wide range of benefits. In addition to the general benefits, different cards are tailored for cardholders with specific interests, like travel, or certain spending patterns. It's worth it to shop around to find a card that best meets your financial needs and fits your lifestyle.

  1. No security deposit required. With an unsecured card, you do not need to provide a security deposit as collateral for your credit card account. 

  2. A type of credit card for every need. For example, some credit cards are geared toward college students and can help them start building a credit history. Some are made for people who like to travel and are frequent fliers. There are credit cards offered to businesses that have higher spending limits or allow multiple card holders.

  3. Credit card rewards. Many unsecured cards offer rewards and perks, such as a certain percentage cash back rewards on all eligible purchases, or on purchases in certain categories (gas, groceries). Travel reward cards typically let you build up points or miles to help pay for airline tickets. They might even allow access to airport lounges.

  1. Balance transfer. From time to time, your credit card issuer may offer the opportunity to transfer a high-interest balance to a card with a low introductory APR balance transfer offer. During that period, often 12 to 18 months or billing cycles depending on the product, you could put more of your monthly payments toward the balance and less toward interest. After the introductory period, you’ll pay a higher interest rate on whatever balance is left based on your account terms.

  2. Lower interest rates and higher credit limits. If you have worked your way up to a good credit score, you may qualify for a card with a lower annual percentage rate (APR) and a bigger line of credit to give you maximum flexibility. 

  3. Travel necessity. Credit cards may have travel-related benefits that you can take advantage of. For example, your credit card may offer travel insurance, trip cancellation insurance and/or lost baggage insurance.

Considerations for unsecured credit cards

Used responsibly, an unsecured credit card can be a good financial tool, whether it’s getting you through an emergency or helping you accumulate miles for a vacation. That said, it's important to keep a few things in mind.

Your credit score, credit history, income, along with other factors, are considered when you apply for a credit card. These factors also can affect the interest rate you are charged and your credit limit. At the same time, your use of the card can affect your credit score, too.

A high credit limit gives you flexibility on using your card for purchases, but it also means you could quickly build up a high monthly balance. Be careful using an unsecured card for daily expenses without a plan for paying the bill at the end of the month. Always pay at least the minimum payment by the due date to avoid late payment fees. Credit card statements must include information on how long it will take to pay off your balance and how much interest you will pay by making only the minimum monthly payment. Those figures will show how important it is to go beyond the minimum monthly payment. 

And remember: If you miss payments, make late payments, or exceed your credit limit, it could negatively impact your credit history and credit score. The issuer might also charge you penalty fees and could even close your account. 

What to know before making a credit card application  
 

A credit card application will typically result in a "hard pull" on your credit report at the credit bureaus, which can temporarily lower your credit score slightly. So before making an application, do some homework:

  1. Request copies of your credit reports and review them to see if there are any errors. If so, take steps to correct them. Also, find out your credit score and credit utilization rate. The U.S. Consumer Financial Protection Bureau† provides information on how to get started

  2. Some issuers may offer a prequalification process with a "soft pull" on your credit. If this service is available, you may be able to obtain a preliminary approval before the application is made

  3. Understand the terms of your credit card agreement, including applicable interest rates and fees

  4. Set a monthly budget for your credit card

Credit Cards offered at TD Bank

Effectively paying off credit card debt involves choosing the right strategy for your financial situation. The right credit card account from TD Bank can help you achieve your financial goals.

  • 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

Effectively paying off credit card debt involves choosing the right strategy for your financial situation. The right credit card account from TD Bank can help you achieve your financial goals.

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.