What is an unsecured credit card?

Summary

• A credit card allows you to make purchases and pay for them later.
• Secured credit cards require a down payment to serve as the card’s spending limit, whereas an unsecured credit card doesn’t require collateral.

Credit products, like loans or credit cards, are either secured or unsecured by collateral. Collateral is something of value you own that a lender may take if you fail to repay an amount you borrowed.

A secured credit card typically uses a down payment as collateral that the credit card issuer may take if you are unable to pay your account balance. An unsecured credit card, however, does not require collateral.

Most credit cards, in fact, are unsecured.

What do you need to get an unsecured credit card?

An unsecured credit card is not backed by collateral. Credit approval and your credit limit are determined based on your creditworthiness, which includes your credit score, income, and financial history. Most credit cards are unsecured, but you typically need a qualifying credit score to get one.

What is a secured credit card?

A secured credit card uses a refundable security deposit as collateral. Your credit limit is based on how much cash you deposit. If you deposit $300 when you open the card account, your credit limit will usually be $300. You typically increase your credit limit by depositing more money into the account.

You use a secured credit card the same way as an unsecured credit card, but if you fail to repay your account balance, the credit card issuer could take your security deposit to cover your debt. As long as you keep paying your account balance, you may get your security deposit back when you upgrade to an unsecured card or close your account.

U.S. Bank offers several secured credit cards to help you build credit while earning rewards and benefits.

Pros and cons of unsecured credit cards

Unsecured credit cards are more common than secured cards for several reasons, but they’re not without drawbacks to consider.

Pro: No collateral

An unsecured credit card does not require you to make a security deposit or offer a bank account as collateral. Approval and your credit limit are based on your creditworthiness.

Con: Stricter qualification requirements

To qualify for an unsecured credit card, you may have to meet certain credit score or income requirements.

Pro: Lower APR

Unsecured credit cards tend to have a lower annual percentage rate (APR) than secured credit cards. This means the interest rate on purchases may be lower, and you may pay fewer fees for using the card.

Con: May be easier to overspend

Unsecured credit card limits are usually based on factors like your credit history and income, rather than tied to a specific cash value. That could make it difficult for some people to manage their spending, since the limit tends to be much higher than secured cards. (This may also be a pro if you manage your spending responsibly.)

Pro: Bigger rewards

Both unsecured and secured credit cards may offer rewards and benefits programs. However, unsecured credit cards (especially those with annual fees) tend to have more extensive rewards programs.

What credit score is needed for unsecured credit cards?

Each card issuer has specific requirements for different types of credit cards. Generally, to qualify for an unsecured credit card, you need a good to excellent credit score, which is in the 670-850 FICO® Score range. If you have a rating in the fair range (i.e., a score between 580 and 699), you may still qualify for some unsecured cards, but they may have fewer benefits and higher fees.

How do you apply for unsecured credit cards?

Applying for an unsecured credit card takes just a few minutes. Doing the research before you apply takes more time. The application process includes three simple steps:

1. Check your credit and compare options: Before you apply, check your credit score using a free service like AnnualCreditReport.com. Knowing your score may help you find cards you’re more likely to be approved for. From there, you could compare card offers that align with your needs and credit standing. Some credit card issuer approval tools will let you see if you qualify without a hard credit check.
2. Gather your information: When you apply for a credit card, you typically need to provide your legal name, date of birth, Social Security number, housing information, and financial information, like your annual income and employment status.
3. Apply and wait for a decision: Usually, you may apply online in just a few minutes if you have all your information ready. Sometimes, you may get an instant decision. If approved, the physical card should arrive in the mail within a couple of weeks. You could also apply over the phone or in person at a bank. If you have the U.S. Bank mobile app, you may apply for U.S. Bank credit cards in just a few steps.

Support your finances with an unsecured credit card.

An unsecured credit card could make it easier to cover your day-to-day (and unplanned) expenses without worrying about overdrawing a credit limit. But while unsecured cards are useful and offer benefits, they also pose the risk of overspending and accumulating high-interest debt. Before you apply, ensure you can afford an unsecured credit card and are prepared to manage the financial responsibility.