Secured Credit Cards vs. Unsecured Credit Cards


If you have bad credit because of poor credit decisions, you probably already know by now that there are major financial consequences. You can’t get a loan that quick or get approved for a mobile phone contract because of your less than stellar credit history. Whichever way you look at it, bad credit is exactly what the phrase suggests. It’s bad.

So what should you do if you have bad credit and you want to apply for new credit? There are two options available. Either you pay a company to do the credit score repair or opt for a bad credit credit card you can use to rebuild your credit rating. Obviously, the latter will take longer but it’s one many experts recommend. If you’re committed enough, using credit cards to repair your credit score really work in the end.

When it comes to credit cards for people with bad credit, there are two types you can choose from. They are secured cards and unsecured cards. The next question is, which one is better for you? To answer this predicament, let’s take a closer look at each type.

What are secured credit cards?

Secured cards are cards that require you to provide a deposit that is equivalent to your card’s credit limit. For instance, if your limit is £300 then you must provide £300 in deposit to the bank before issued the card. But don’t worry you will get the money back once you close the account and provided that you’ve demonstrated good consumer behavior.

Once approved for a secured card, you can use it like you would an unsecured card or any credit card for that matter. It is offered by majority of banks in the UK for people with bad credit and no credit history yet.

What are unsecured credit cards?

Unsecured credit cards, on one hand, are options that are mostly offered for people with a good credit standing. As the name suggests, the card type does not require any deposits making it more financially convenient for consumers. Most cards offered my banks are actually unsecured and they also offer added perks like rewards, cash back, discounts and more.

Since the card is not secured on any deposit or collateral, it is much harder to get approved for especially if you have bad credit. There are still some unsecured options available and easier to quality for but they usually come with hefty annual fees and steep charges.

Which is best for you?

As you have seen above, there are pros and cons for each type of credit card. With secured cards, you’ll have a hard time if you don’t have sufficient cash to pay for the deposit. With unsecured loans, you’ll also have a hard time securing a card if you have poor credit history. In the end, it boils down to which type is perfectly suited for your financial circumstances.

But if you do have enough cash and you have bad credit history, opting for a secured credit card is a safe bet. All you need to do is provide the money for the deposit and your application is often good as approved. While the interest rates are not exactly something to be completely happy about, it is relatively lower than what unsecured credit cards for people with bad credit charge.

In any case, the trick is to stay within your credit limit and pay your bills on or before your due date to maintain good standing and improve your credit rating over time.