Secured vs Unsecured Credit Cards - What Is the Difference Between Unsecured and Secured Credit Cards?

 Unsecured Credit Cards

The very common unsecured or regular credit card is a form of plastic money issued by a bank, or any other card-issuing company. Unlike with debit/ATM cards, where you use your own money, the amount used by the customer is loaned by the financial institution. This amount has to be repaid  - completely or in part - on a due date set at the end of a monthly billing cycle, as specified by the issuer.

Moreover, there is a limit on the amount that can be availed, and an interest is charged on the amount that is to be repaid. The customer’s credit score is heavily dependent on his/her credit card activity, and being regular in making payments is best to maintain your credit health. Otherwise, owning a credit card brings along with it the risk of landing in significant debt.
Secured Credit Cards: A Brief Introduction

A secured credit card is issued against a cash deposit. You deposit a sum of money with the lender, which acts as collateral. It is called 'secured' because the collateral serves as a security for the lenders. If you don't manage to repay the loaned amount, the lender can claim the amount to make up for the loss.

These cards are designed for people who are trying to build credit but do not have access to a regular (unsecured) credit cards since they haven't yet established enough credit score. It could be a supportive start for you if you are currently without any credit history or if you are striving to rebuild your damaged credit history.
How Do Secured Credit Cards Work?

In case you are searching for an opportunity to build or rebuild your credit score, a secured credit card could be a fitting option for you. All you need to do is to approach the bank and apply for one. Well, there isn't a guarantee of getting a secured card as soon as you pay the deposit. The issuer will scrutinize your documents and approve the application only if you qualify for the card.

Once your application for a secured card is approved, you have to pay the security deposit and get your card. The issuer sets a credit limit for you, which is secured with the cash deposit. After you make the initial deposit, secured cards work exactly like the unsecured ones. You can use the card wherever credit cards are accepted. As you make purchases, your credit utilization rate rises.

Just like regular unsecured credit cards, the card issuers report your monthly activities to the credit bureau - your credit score fluctuates accordingly. You must not assume that you don't have to pay monthly credit card bills since you have already paid a deposit.

The deposit is for security reasons, so that lenders don't run at a loss if you ever fail to repay your dues. Just like regular credit cards, you have to pay your credit card bill every month within the due date; or else an APR is imposed on your outstanding balance.