Getting a new credit card is an important decision, especially if you have bad or limited credit. Depending on your credit history, you’ll have different options of both secured and unsecured cards.
What does that mean? What’s the difference. and which one should you get?
The answer lies in your credit score and your credit history. In many ways, secured credit cards are like any other credit card but require a security deposit.
If you find yourself in a difficult credit situation, you have some choices to make. One is a secured vs unsecured credit card. Read on to find out more about the differences and which you should choose.
Secured vs Unsecured Credit Card Options
Using an unsecured credit card works just the way you expect. As you spend money, you take out a loan from the bank. You have a predetermined credit limit and are expected to pay back the amount you spend.
When you apply for an unsecured card, the card issuer will look at factors such as your credit score and credit history. They’ll pull your credit report to look at these factors.
With a secured card, you must fund the card. The deposit you place on the card determines your credit limit.
You still make monthly payments on the card, but the deposit acts as collateral. You may get the deposit back if you ever close the account or upgrade to an unsecured card from the same issuer.
Building Your Credit
You can build your credit with either a secured or unsecured card. However, depending on your credit situation, a lender may not approve you for an unsecured card.
Secured cards give banks and lenders more security that they’ll get their money back. That’s because your credit limit is secured with the deposit.
If you’re thinking about building or rebuilding your credit, read about each of your options before making a decision.
Building your credit isn’t just about finding the right card, though. You’ll need to manage your money responsibly and make all your payments on time.
Keep in mind an unsecured card will come with unfavorable terms if you have less than good credit.
A secured card may be the best option if you find yourself struggling to manage your finances. This will keep you from digging a deeper hole of debt than you can manage.
Remember to charge only what you can afford and pay your balances in full at the end of each month.
The Takeaway
Managing money can become difficult at times, especially if unforeseen expenses come up. If you have bad credit, you still have credit options.
If you’re thinking about a new credit card, you’ll come across the question of a secured vs unsecured credit card. Do your homework and think it through before making a choice.
Make sure you can stay on top of your payments and start saving more money.
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