When someone says “credit card,” your first thought is often an unsecured credit card. It enables you to make big purchases and pay them off gradually. They frequently include rewards programs like cashback and miles as well.
In contrast to other loans, credit card issuers won’t ask you to put down any security because it’s an “unsecured” loan (such as an auto loan or a mortgage). Since there is no collateral, you often need to have a high credit score to be approved for an unsecured card.
You can choose from a variety of unsecured credit cards, depending on your circumstances, ranging from student cards for college students to chargeback cards that demand the whole balance to be paid each month.
Keep reading for everything you need to know about unsecured credit cards.
What is an Unsecured Credit Card?
With an unsecured credit card, you can make purchases without providing any kind of security as long as you agree to pay the balance in full at the conclusion of the agreed-upon time period, which is normally one month. Unsecured simply means that the lender does not require a down payment or property as collateral in exchange for granting you access to funds.
If you make a major purchase on an unsecured credit card and don’t pay it off by the end of the month, you could find yourself in debt very quickly.
You often won’t be able to receive an unsecured credit card if you don’t have strong credit. You still have other possibilities, though, that will enable you to build your credit and climb the financial ladder.
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How Does an Unsecured Credit Card Work?
When you apply for an unsecured credit card, a lender does a credit check and offers you a card with a specific limit, an interest rate, and benefits based on how excellent your credit score is.
After that, you can make purchases with the credit card and settle the balance at the end of the month. If you can’t pay the entire bill by the end of the month, be sure to include the interest in your budget. Otherwise, any outstanding balance will accrue interest.
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Are Store Cards Unsecured Credit Cards?
Unsecured credit cards are issued by a wide range of organizations. A store card can be a type of unsecured credit card, albeit the majority are issued by particular financial organizations. Store cards differ from most unsecured credit cards in that you can only use them at a very small selection of locations.
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Who Should Get Unsecured Credit Cards?
An unsecured credit card is ideal for you if you have good credit, sound money management, and some savings. They’re helpful for those whose regular income covers all of their bills but may not instantly allow for a major buy.
If you have big monthly bills, and you get a weekly paycheck, use a credit card to easily cover the large expenses and pay back part of the balance every time you get paid. Store cards and other unsecured credit cards are useful for allowing you to accumulate little purchases and then pay them off in full at the end of the month.
Having a credit card at a particular store can help you keep track of your transactions if you are someone who makes frequent purchases there.
Finally, unsecured credit cards are a great choice if you have regular bills that you worry you might forget to pay. You can utilize your credit card to have the payments made automatically each month and only have to pay one bill.
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Who is Eligible for Unsecured Credit Cards?
For most credit cards, you’ll typically need a credit score of good to exceptional (670-850). Your credit limit will probably be larger and you’ll likely be eligible for the highest rewards options if your score is better.
Your alternatives might not be as good if your credit score is between 580 and 669 points. If your credit score is lower than that, you either won’t be eligible at all or the available cards may have higher fees and fewer rewards.
In addition to your credit score, the card issuer will also look at a few additional factors, such as:
- Income
- Employment status
- Your savings
- Rent or mortgage payments per month
- Other credit cards you have
All of the information above enables the issuer to determine with certainty whether you will be able to repay the balance on your credit card.
The age requirement for obtaining an unsecured credit card is 18. An 18-year-old must show they have a source of independent income or have a co-signer who is over 21 and has acceptable credit in order to be approved. An adolescent can be added as an authorized user on an adult’s card as early as age 16.
Couples and families can also share an unsecured credit account, and businesses of all kinds can get an unsecured credit card– even if you freelance.
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Why You Should Get an Unsecured Credit Card
- Unsecured credit cards are very convenient. Use one to shop online, transfer money via Venmo, PayPal, or another app, pay bills automatically, and buy things at physical retailers.
- Some unsecured credit cards will reward you for spending money, like cash back and air miles.
- Unsecured credit cards often have insurance, such as fraud and basic travel insurance.
- Some unsecured credit cards come with welcome benefits, including waived annual fees for your first year and 0% interest on purchases and balance transfers for a limited time period.
- Unsecured credit cards work worldwide, so you can use them while you travel and for shopping at online stores outside of the United States.
Why You Shouldn’t Get an Unsecured Credit Card
- You might cycle into debt faster if you have an unsecured credit card and aren’t disciplined. It’s easier to spend more than you intend to with a plastic card than with cash.
- You might rack up a big balance with high interest. If you only pay the minimum balance, you could still be digging yourself into a deeper debt hole.
- Welcome benefits like zero fees and 0% interest could end up costing more than you want if you aren’t mindful of when the promotional period ends.
- You might not get an unsecured credit card with a maximum limit that suits your needs, especially if you don’t have a good credit history.
- You might end up paying more than what you spend if you share a card account with someone, and they rack up a big bill.
Unsecured Credit Card Alternatives
If you don’t want or can’t get an unsecured credit card, check out some alternatives below.
Bank Debit Cards
A debit card is connected directly to your bank account. You can easily spend your own money using it.
Like credit cards, debit cards can be used for a variety of purposes; however, there is no requirement to specifically top up or pay off the card. Debit cards from banks are integrated with your checking account, thus you must have a bank account to obtain one.
Remember that using a debit card doesn’t raise your credit score, although some debit cards provide cashback rewards.
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Secured Credit Cards
In contrast to an unsecured card, a secured credit card requires a security deposit that the lender will hold against your card account. Typically, your deposit and card limit are identical. Once approved, you can use your secured credit card and make monthly payments to settle it.
Similar to an unsecured credit card, the lender does not touch the security deposit and reports the payments to credit bureaus. Since there is no risk for the lender, almost anyone can obtain one. As a result, whether you have no credit or terrible credit, they are an extremely effective instrument for raising your credit score.
Unfortunately, they may have higher annual fees and interest rates than unsecured credit cards. You might not be able to obtain a limit high enough to access some of the advantages of having a credit card since it requires a cash deposit.
Prepaid Debit Cards
A prepaid debit card is an excellent solution if you don’t have a bank account or want to simply control your spending. With prepaid debit cards, you can load funds onto the card and use it just like a bank debit card or credit card.
Since you can never spend more than you have, parents frequently use them to manage spending money for their children.
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Frequently Asked Questions (FAQ)
Unsecured credit cards don’t call for a security deposit, which makes them more difficult to be approved for if you have bad credit. Your security deposit serves as the credit card limit on a secured card. Despite having smaller spending caps and higher fees, they are simple to qualify for.
No. The name itself provides the answer; unsecured denotes a lack of security. As a result, they usually only accept applicants with strong credit.
Yes. Using an unsecured credit card can be a smart strategy to improve your credit if you have a spotty credit history. You might only be eligible for a credit card with a low credit limit and high fees, though. Be sure to exercise caution in order to repay the account balance on time each month.
It depends on the card and its intended function. An unsecured credit card is a good way to make paying for goods more convenient if you have good budgeting abilities, and you gain benefits from using the card.
Make sure your card is issued by a reliable lender; otherwise, you risk having an interest rate or card fees that are considerably greater than you anticipated.
If your financial situation is precarious, using an unsecured credit card might not be a good idea because the penalties for missing a payment add up quickly. This includes if something goes wrong or you lose your job.
Almost always, unsecured credit cards have a cap. In the following two scenarios, it might not have one:
1. Credit cards for business use.
2. You’re very wealthy.
Read the fine print carefully if an issuer offers you a card with no limit and neither of these situations applies to you.
What you’re looking for and what you think is simple will determine this. The easiest card will vary depending on the individual because of the many aspects that issuers take into account. You can search for “quick approval” credit cards if you’re seeking a simple card that won’t require you to wait or complete numerous papers.
Check for Student Cards or Starter Cards if you want an unsecured credit card that’s simple to get because you’re in college or you haven’t had much credit history.
Getting authorized on someone else’s unsecured credit card could help you improve your credit if you have bad credit. It’s worthwhile to take the time to research numerous issuers and weigh your possibilities, especially if your credit is less than ideal.
Unsecured credit cards aren’t for everyone, despite the fact that they could be highly alluring. The worst unsecured credit card is ultimately one you cannot afford.
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