What is an unsecured credit card?
Unsecured credit cards are the type of card people typically refer to when they use the phrase “credit card.” These cards aren’t secured by collateral (like your home or other property), so issuers must rely on courts or garnishment to collect unpaid debts. The primary benefit to card users is that they don’t require a cash deposit to establish the credit line.
The best unsecured credit cards for bad credit have less strict credit requirements, low fees, and allow for previous bankruptcy.
Choosing an unsecured card for bad credit
With unsecured credit cards, the features that could impact your credit and financial health the most are the APR and fees. Without responsible use, owning an unsecured credit can hurt your credit score instead of helping you repair it.
It’s best to pay your credit card off every month in full, but that’s not always possible. To avoid incurring interest that could cost you considerable money, look for a credit card with the lowest APR and fees.
- APR. APRs for unsecured credit cards are often around 15% higher with bad credit than for people with excellent credit scores. If your score is in the 500 to 600 range, expect to see rates in the mid- to upper-20s.
- Fees. Annual fees are the easiest to spot, but there are others. Make sure you read the fine print and scan for things like “cash advance fee,” “late payment fee,” and “over-limit fee.” It’s important to avoid these types of charges because they can add up quickly.
How to rebuild your credit score
Credit cards are one of the best tools to build and repair credit. But here’s the paradox: If your score is less than ideal, qualifying for one can be difficult. Whether you’re dealing with the effects of late payments or something as serious as bankruptcy, secured credit cards are probably your best solution for rebuilding credit.
Secured credit cards aren’t financed by the issuer; they’re financed by you. That makes them less risky for lenders, which in turn relaxes the qualification guidelines. Most credit cards require a “good to excellent” credit score to apply, but secured cards are far more lenient.
Over time, using a secured card correctly will improve your credit score and greatly benefit your credit history;: a 10-year summary of all of the places from which you have borrowed money.
What is a good credit score?
Generally speaking, a credit score of 700 or greater is considered good while a score of 800 and up is considered excellent. Ultimately, it depends on which type of score you’re looking at. The credit scores most commonly used by lenders are provided by FICO® and VantageScore. Here’s how their ranges compare:
Having a good credit score is more important than it’s ever been. Not only does it affect your ability to qualify for a mortgage and other types of loans; it influences how much interest you’ll pay on that loan. The better your score, the better the rate you’ll get.
Can I get an unsecured card with no credit history?
The answer: Maybe. If you’re young or you’ve only ever used cash in the past then you may not have a credit history, which isn’t bad. It just means you may have limited credit card options starting out. The best unsecured credit cards for bad or average credit may also work for anyone with no credit history. The good news is that both cards on our list offer free pre-qualification checks so you can know the likelihood of getting approved in advance without having to put a hard inquiry (which can dock your credit score if done too often) on your credit report.
If you find that you don’t pre-qualify for these options, then you may need to start with one of the best secured credit cards. These cards require a security deposit to open a line of credit; however, with responsible use, you could get a full deposit refund and upgrade to an unsecured account in less than a year.
How do secured credit cards work?
To open a secured credit card account, you’ll be required to pay an upfront security deposit that functions as your credit limit. So if you put down $400, your credit limit will be roughly $400, minus the fees. Most secured cards have a minimum deposit of $200 and a maximum credit limit of $1,000.
Remember: No matter what type of card you have, you should use it just like cash. Always strive to spend only what you can pay off in full every month. Otherwise, you could incur interest payments that can severely impact your financial goals.
Can I get a secured card with bad credit?
Secured credit cards often don’t have the same rewards and benefits that unsecured cards do, but they have relaxed credit requirements. That’s why they’re a great choice for anyone with bad credit — and those who haven’t developed a credit history at all.
Here are some of our top picks for the best secured cards for bad credit:
- Discover it® Secured: best overall
The Discover it® Secured is one of the few secured cards that lets you build credit while simultaneously earning rewards. You’ll earn 2% cash back at restaurants and gas stations on up to $1,000 in combined purchases every quarter, and 1% cash back on all your other purchases. Plus, you’ll get automatic cash back matching at the end of your first year.
- USAA Secured Card Visa Platinum® Card: best for military members and their families
The USAA Secured Card Visa Platinum® Card offers military members one of the lowest APRs in the secured card arena: a super-low 4% APR during deployment and PCS, and the security deposit earns money as a two-year interest-earning certificate of deposit (CD).
- Capital One® Secured Mastercard®: best for low fees
With the Capital One® Secured Mastercard® you can open a line of credit with as little as $49 (based on your creditworthiness). Plus, except for a $10 or 3% transaction fee for cash advances (whichever is greater), there aren’t any fees.
Is it better to have a secured or unsecured credit card?
In general, it’s better to have the credit card that will help you meet your financial goals. In some cases that involve bad credit, that might be an unsecured card, but in other cases, you may need to start with a secured card.
The main difference between the two is that secured credit cards require collateral (typically a cash security deposit), whereas unsecured credit cards do not. You can use both cards the same way to make purchases.
If your credit score has been severely damaged, then you may need to start with one of the best secured credit cards. However, if your score is just fair or average, you may be able to start with one of the cards on our list. (Consumer credit reporting agency defines a FICO® Score of 300-579 as Very Poor and a score of 580-669 as Fair.)
Pros of unsecured credit cards for bad or average credit:
- Establish a line of credit
- No security deposit required
- Higher credit limit
Cons of unsecured credit cards for bad or average credit:
- Stricter approval guidelines
- Higher interest rates
- Potentially higher annual fees
- Maintenance fees and other charges may apply
The good news is that using your card responsibly – such as paying in full and on time each month – will allow you to improve your credit score over time. You may be able to upgrade to an unsecured card with more favorable terms or even rewards.
Rules for getting a credit card with poor or average credit
Whether you’re trying to fix poor credit, or simply build your credit from the ground up, an unsecured credit card is your best bet. Not only do unsecured credit cards report to all three credit reporting agencies, but they also help you build credit without the use of a deposit.
Before you take the plunge, however, you should be aware of some simple rules that can help you make the most out of your unsecured card:
Rule #1: Know your credit score.
Before you consider applying for an unsecured credit card, you should first take some time to find out your credit score. To get a free copy of your credit score from at least two of the three credit reporting agencies, you can sign up for a free credit tracking site like CreditKarma.com or CreditSesame.com.
Rule #2: Only apply for cards you might qualify for.
If your credit score is under 700, you should definitely avoid applying for the best rewards credit cards. For now, stick to cards for poor or average credit, including any card on this page.
Rule #3: Use your card with caution.
Once you get approved for an unsecured credit card, it’s important to take things slowly. You should make purchases you can afford to pay off each month.