Secured vs Unsecured Credit Cards
Secured credit cards and unsecured credit cards are two different types of credit cards, one is issued upon a deposit and the other has no such requirement and the credit limit also may differ. The use of plastic money has increase exponentially in the western world in recent times and hardly anyone carries cash with himself, preferring to make payments through his credit cards. But this over reliance on credit cards has also created problems for the people. They have started to make unnecessary payments through credit cards where as financial prudence dictates that these cards should be used only sparingly and for expenditure that is necessary. Over spending and bad spending has meant that a majority of people are today carrying huge balances in their credit cards paying large interest every month to the issuing company. Though this means more money for credit card companies, there are also fears among credit card companies of losing out on their principal amount. This led to the development of secured credit cards. Just what is the difference between secured and unsecured credit cards and what this difference means to the users?
Secured credit cards
The concept of secured credit cards was introduced to overcome the problem of preponderance of people with bad or no credit history. With the number of people applying for credit cards increasing exponentially and the use of credit cards becoming commonplace, credit card companies had to deal with countless applications from people who had poor credit history. As credit card companies issue cards to those customers who are credit worthy depending upon their credit history, it became difficult for these companies to keep on rejecting applications of people with bad credit. So they came up with an ingenuous idea of secured credit cards. To get a secured credit card, a person has to deposit money with the credit card company and set a limit for himself. These cards are good for people who have no control over their spending habits as they do not have to worry about running balances in their credit cards.
Unsecured credit cards
As the name implies, these cards are unsecured which means no money is deposited with the credit card company to avail them. As such companies prefer to allow their usage only for individuals who have a good credit history and have a good track record of repayments on time. Such a person would also get greater credit limit and that too at a lower APR than a person with a secured credit card. Though the customer has to pay the bills monthly to the credit card company, he has the option of paying in full or carries the balance to be paid later which attracts interest from the issuing company.
Difference between Secured Credit Cards and Unsecured Credit Cards
Thus the difference between secured and unsecured credit cards is very obvious with secured cards being offered to those with a poor credit history and unsecured cards for those who have an excellent credit score. The other perks include lower annual fee and APR for those having a good credit score. These people generally have a higher credit limit on their cards than people with low or bad credit. There is no up front fee for those with a good credit score and are required to pay an annual membership fee, which too is waived in many cases.
Since secured credit cards provide a chance to people with a poor credit history to repair their score and come back on track, even people who have undergone bankruptcy are making use of these cards even though these cards carry a higher rate of interest and also require money to be deposited.