Finding the right unsecured credit card, whether it's for rebuilding bad credit or gaining flexibility with a new credit line, can be daunting. With so many factors to consider, it's easy to make an uninformed choice. The table below, however, makes this much easier. Simply compare cards and click on your card of choice to go to its online application.
Any time we lend something to someone, we are trusting that person to return what we’ve lent them, and to do so in a reasonable amount of time. This happens when you lend your sister your favorite sweater, or when a bank lends you the money to purchase a home.
On a personal level, we have to go by our own experiences to decide whether to lend something to someone. If your friend has a bad habit of losing your possessions, for instance, you’re probably going to stop lending them out.
Since it's nearly impossible for lenders to develop these kinds of personal relationships with all of their customers, they have to rely on credit reports to judge an applicant's risk. This is especially important for unsecured credit products like unsecured credit cards.
1. What Are the Differences Between Secured and Unsecured Cards?
The biggest difference between secured credit cards and unsecured cards is that secured cards require an upfront cash deposit while unsecured cards don’t require a deposit. The deposit for a secured card is usually a few hundred dollars, although some secured cards allow a deposit of less than $100.
With a secured card, the deposit is like a promise that you make to the card company that you’ll make your minimum payment if you make new charges or carry a balance. If you break the “promise” and default on your credit card payments, the card company will close your account and deduct the amount you owe from your deposit.
This system explains another difference: Secured cards can have lower interest rates than unsecured cards. That’s because your deposit ensures that your card company gets paid, even if you don’t make your payments.
With an unsecured card, that “promise” to pay still exists, but the card company trusts you to make your minimum payment when it’s required without requiring collateral. If you don’t make the payment, there’s no deposit for the company to tap. That means this type of card is riskier for your card company to give you.
That added risk explains why you’ll typically need excellent, good, or at least fair credit to qualify for an unsecured card. If your credit’s poor, you may still be able to get an unsecured card, but it likely will come with high rates and a lot of fees.
Some secured cards can be converted into an unsecured card after you make a certain number of payments on time. Once your card is converted, you should receive a refund of your deposit, plus any interest you may have earned (not all secured card accounts earn interest, however). If you have a secured card that can’t be converted, you’ll have to cancel that card to have your deposit refunded.
By the way, there’s no such thing as a secured card that doesn’t require a deposit. If no deposit is required, the card is, by definition, unsecured.
With a secured card, your credit limit is usually equal to your deposit, although some secured cards will give you a limit that’s slightly higher than your deposit. The limit is the maximum amount you can charge to the account. Whenever your balance is less than your limit, you have the capacity to make more charges up to the limit again.
Despite their differences, secured and unsecured cards also have a lot in common:
They’re both credit lines: Which means they’re a type of debt. It also means they’ll usually report your payments to the credit bureaus, which can affect your credit scores. The three major bureaus are Experian, Equifax, and TransUnion.
They’re both revolving debt: This means you can carry a balance, pay off some or all of your charges, and then use the card again, unlike a loan which is usually one-and-done.
They both have potential costs: Both card types typically come with assorted fees, including both card fees and transaction fees. Plus, both types of cards charge interest on carried balances.
They can both have rewards: They both may come with a rewards program that gives you cash back, airline miles, travel perks, or points that you can redeem for merchandise or gift cards. Most rewards are tied to how much you use the card.
Before you choose a secured or unsecured card, you should shop around and compare offers to find a card that fits your needs. Each card type has its ups and downs, and the best card for you will depend on your individual credit profile and spending habits.
2. Is an Unsecured Card Better than a Secured Credit Card?
The answer depends on your personal situation, why you want the card, and how you plan to use it.
If you have excellent or good credit, an unsecured card is likely the way to go, as you won’t need to put down a deposit. While some secured cards let you earn interest on your deposit, it isn’t a very good rate, and most secured credit card deposits won’t earn interest at all.
If you have fair credit, a decent unsecured credit card may be an option, but a secured card is likely to give you the ability to access a higher credit line. That’s because starter credit cards typically have low credit limits, while some secured cards allow you to deposit thousands of dollars for a credit line of the same size.
Credit cards with higher limits are typically more useful. For example, if your limit is only, say, $300, you won’t be able to charge more than that on your card at any one time. You won’t be able to buy a $500 appliance, or $1,200 airline tickets, or a $301 restaurant meal with that card. If you also carried a balance of, say, $200, your available credit would be only $100 at any one time.
If you have poor credit, a secured card is almost always better for you than an unsecured card. Unsecured cards available for people with bad credit tend to charge high rates and fees, and the credit limits will be very low.
While secured cards may require putting up more cash at the start, the deposit will be fully refundable if you close your account with a $0 balance. The high fees of a subprime unsecured card aren’t refundable.
Rebuilding damaged credit isn’t easy, but you can’t rebuild if you don’t get started. Once your credit improves, you can trade up to an unsecured card. If you don’t have the upfront deposit for a secured card, try to save it so you can get this type of card. This can also help you get into the habit of saving money each month, which may make it easier to maintain your card payments.
3. Are There Unsecured Cards for Bad Credit?
Yes, there are unsecured cards for people who have bad credit, but they’re not very affordable. Basically, bad credit usually means you aren’t always great at paying on time, which makes credit card issuers nervous.
To help combat the risk of giving unsecured credit to someone with a bad credit history, issuers tend to charge high rates and fees for unsecured subprime cards to offset the high risk that the credit card company takes on. Even closed-loop store credit cards, which tend to have very flexible credit requirements, will only offer small credit limits to consumers with poor credit.
If you have bad credit, a secured card may be a better choice. Secured credit cards tend to charge lower interest rates and fees than unsecured cards, as well as offer the option to obtain a higher credit line by making a larger deposit. Plus, secured credit card deposits are completely refundable so long as you close your account with a $0 balance.
If you decide to open an unsecured subprime credit card, be sure to keep your balances low and to pay on time each month. After six months to a year of responsible credit card use, your credit should improve enough to qualify for a better card. At this point, it’s likely best to close your subprime card account, especially if it charges a high annual fee.
4. What Credit Score Do You Need to Get an Unsecured Card with No Annual Fee?
Annual fees for most unsecured cards vary from $0 to a few hundred dollars per year, though some elite cards charge thousands of dollars just to put one in your wallet. If your credit is good and you shop around, you should be able to find an unsecured card with no annual fee that meets your needs.
While there’s no one minimum credit score that you need to get this type of card, you’ll typically need at least fair credit to qualify for an unsecured card with no annual fee. If you have bad credit, you can check with your local credit unions to see your options for a no-fee card. Alternatively, several secured credit cards are available for consumers with poor credit without an annual fee, though a deposit will be required.
In some cases, paying an annual fee for an unsecured card isn’t necessarily bad. Some cards that charge an annual fee offer better benefits, a bigger signup bonus, or more cash back, points or mileage rewards that can partially or wholly offset the annual fee. If you’re a big spender, frequent flyer or luxury-class traveler, an annual fee could be well worth paying for the rewards and perks you’ll get with your card.
To decide whether paying an annual fee makes sense, think about how you plan to use the card, and then weigh the benefits and rewards against the fee. It may be worth it or it may not.
If you can get similar benefits with a card that doesn’t have an annual fee, or if you don’t plan to use the perks of the card that does have a fee, it may not make sense to pay it.
If you choose a card with an annual fee, put a reminder on your calendar to reassess the card when it renews for the next year. If you’re happy with it, go ahead and pay the fee. If you’re not happy, it may be time to cancel that card and possibly replace it with one that doesn’t charge an annual fee. This reminder is also smart if you get a card with an annual fee that’s waived for the first year.
5. What Other Fees Are Charged by Unsecured Credit Cards?
Both secured and unsecured cards may charge a variety of other fees. Examples include:
If your credit is good or excellent, you should be able to find cards that offer lots of benefits with fewer fees. Additionally, many credit card fees are transaction fees, meaning they’re only charged when you perform a certain type of transaction. These fees can typically be eliminated by avoiding the corresponding transaction type.
For example, cash advance fees are only charged when you make a cash advance with your credit card. If you don’t want to pay cash advance fees, don’t make cash advances with your card.
Keep in mind that interest is also a type of fee. If you carry a balance past your due date, you’ll normally be charged interest every month until you pay your balance in full. The only exception is if you have an active 0% interest offer.
6. Can Unsecured Cards Be Used to Help Rebuild Your Credit?
Both secured and unsecured cards can help you improve your credit if your card issuer reports your payments to one, two, or all three of the major credit reporting bureaus: Equifax, Experian, TransUnion.
While you’re using your cards to rebuild your credit, always make your payments on time, don’t apply for more new cards than you need, and don’t charge up to the limit (i.e., “max out”) any of your cards.
7. How Do You Get a Higher Credit Limit with an Unsecured Card?
With an unsecured card, your credit limit will be based primarily on your credit profile and annual income. Other factors that may be considered include how long you’ve had your credit card account, as well as how much of your available credit you normally use (a ratio known as your credit utilization).
One way to get a higher card limit is to contact your card issuer and ask for it. Some companies let you make a request online, while some you’ll have to call. If you’re a good customer — i.e., you pay your card on time every month and use your card regularly — the answer might be yes. Keep in mind that direct requests for a credit limit increase may result in a hard inquiry.
Or, your card company might raise your limit even if you didn’t ask for a higher amount. Most credit card issuers will periodically review your account and increase your credit limit automatically if you meet their qualifications (requirements will vary by issuer and card).
A higher limit can help you improve your credit scores. That’s because, for any given credit card balance, your credit utilization ratio will be lower with a higher level of available credit. Having higher limits and using proportionally less of the credit you have available shows you can manage credit well and don’t charge more than you can afford.
If you have excellent or good personal credit, you probably can get an unsecured business credit card, even if your business does not have its own credit profile yet. If your credit is fair or poor, qualifying for this type of card will be difficult, though not necessarily impossible.
A business credit card can be helpful if you need quick access to capital to start or expand your business, or you want to separate your personal and business expenses. However, business credit cards don’t offer all of the legal protections that come with consumer credit cards.
By the way, your business doesn’t have to be a well-established company with a lot of employees and customers, nor does it need a six-figure revenue stream. If you have a legitimate side hustle of any kind, you might be able to qualify for an unsecured business card.
9. How Do You Choose the Best Unsecured Credit Card?
Choosing the best credit card for your needs, whether it’s secured or unsecured, requires careful thought and shopping around to compare card offers. Factors you may want to consider include:
Initial credit limits
Introductory, standard, and penalty interest rates
Cardholder perks and benefits
Signup bonus offers
If you never carry a balance, you likely don’t need to consider rates when you choose a card, though you should still take note, just in case. Make sure to do the math on any annual fees to ensure they’re worth paying.
10. Do Unsecured Credit Cards Require Monthly Payments?
All types of credit cards require monthly payments if you carry a balance from the previous month or you make new purchases with your card during the month.
By the way, “month,” in credit card-speak, doesn’t mean the calendar month, but rather the statement or billing cycle. This cycle occurs monthly, but the dates when it opens and closes probably won’t match the first and last days of the calendar month.
So, if you have a balance on your credit card, you’ll need to make at least the minimum required payment by the due date for that billing cycle. Ideally, of course, you should pay off your balance in full.
At any rate, try to pay more than the minimum. The minimum payment typically is not enough to pay off your balance, plus any interest that you owe within a short time period. If you can’t pay off your entire balance, pay as much as you can and more than the minimum.
If you carry a balance or charge new purchases during the month and you tend to forget to make your payment, mark your calendar, set up email alerts or both, so you’ll be reminded before your payment is due.
11. Can You Earn Purchase Rewards with an Unsecured Credit Card?
Many unsecured cards offer some sort of rewards program that gives you cash back, points, or airline miles when you make purchases with that card. If you have a card that includes a rewards program and you use it to make purchases, you may earn these rewards.
A card that doesn’t offer rewards isn’t necessarily a bad card. It may give you lower rates, fewer fees, a better balance transfer offer, or other benefits rather than rewards.
It’s important to note that your card company can cancel your rewards after you earn them if you violate the terms of the rewards program. For example, you could lose your rewards if you:
Make late payments
Cancel your card
Stop using your card (inactivity)
Return products or services you purchased
Try to cheat, manipulate, or “game” the rewards program
File for bankruptcy protection
You could also lose your rewards if they expire or if your card issuer changes how your card’s rewards program works. Read the rules for your card to find out the details.
12. Can You Make a Balance Transfer to an Unsecured Card?
Most unsecured cards accept balance transfers. If your credit is good, some cards will even give you a 0% introductory interest rate on transferred balances as an incentive for you to move a balance to their cards. These transfer-friendly cards are sometimes called “balance transfer cards,” although they can also be used in other ways.
Before you decide to transfer a balance, read the rules carefully. Many cards charge a balance transfer fee for each transaction. Additionally, transferred balances won’t qualify for most grace periods, so interest will start accruing right away.
You normally won’t be able to transfer a balance from one card to another card within the same card company (e.g., you can’t transfer from one Chase card to another Chase card). Instead, you’ll need to choose a different company for your balance transfer card.
If the credit limit on your new balance transfer card isn’t high enough for you to transfer the entire balance you want to restructure, you can:
Call the card company and ask for a higher limit
Transfer only part of your balance
Apply for a second balance transfer card for the remaining balance
Transferring a balance to an unsecured card can help you pay off debt faster if you get a 0% interest offer or, at least, a lower rate than you’re currently paying. Do the math to see if the interest rate savings is more valuable than the cost of the transfer fee.
13. What is a Cardholder Agreement?
A cardholder agreement is a contract between you and your card company. The agreement sets out the rules and terms for using the card. It should include:
The card’s annual percentage rates (APRs)
How to calculate the monthly minimum payment
The annual fee, if any
All transaction fees (balance transfer, cash advance, foreign transaction, etc.)
The process to resolve disputes between you and the company
Your card company can change your cardholder agreement, but only after giving you written notice of the changes. If you don’t like the changes, you can pay off (or transfer) your balance according to your current agreement and then cancel your card.
The Consumer Financial Protection Bureau, a federal government agency, maintains a database of cardholder agreements. You can use the database to find your cardholder agreement or you can contact your card issuer and ask for a copy. These days, most online banking platforms will allow you to download a PDF of your cardholder agreement.
14. Do You Need a Checking Account to Open an Unsecured Credit Card?
Legally, you don’t need a checking account to qualify for an unsecured credit card. However, in practice, nearly every credit card issuer will require an active checking account, so it may be difficult to get approved for this type of card if you don’t have a checking account with a bank or credit union.
15. Do Unsecured Cards Report to the Three Major Credit Bureaus?
Most unsecured cards report your payments and balances to the three major credit bureaus, Experian, Equifax, and TransUnion. If you’re concerned about whether a particular card reports to the bureaus, check your terms and conditions and/or ask existing cardholders in a credit card forum.
Credit card payments are reported as on time, 30 days late, 60 days late, and so on. If you make a payment after the due date, but still within 30 days, it won’t be reported to the credit bureaus as a delinquent payment, although you’ll usually be hit with a late payment fee after even one day.
Credit reporting can help or hurt your credit scores, depending on whether you are using your card responsibly. That can affect your ability to qualify for credit and, if you qualify, what terms, conditions, rates, and rewards you’ll be offered.
If you make your credit card payments on time, don’t max out your cards, and practice other healthy credit habits, you should be able to build your credit scores in six to 12 months. With a positive payment history and good credit score, you can get approved for many of the best unsecured cards on the market.
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About the Author
Marcie Geffner Credit and Banking Expert
Marcie Geffner is an award-winning reporter, editor, and writer. Her stories about banking, credit cards, insurance, economics, small business, and other subjects have been featured by the Los Angeles Times, Washington Post, Bankrate, Credit Karma, Bookmarks Magazine, FOX Business, CNBC, Yahoo! Finance, and dozens of major U.S. newspapers.
Her articles have been cited in seven nonfiction books and two U.S. Congressional hearings. She edits nonfiction, memoir, and fiction, and contributes to Kirkus Reviews. Marcie holds a bachelor’s degree in English from UCLA and MBA from Pepperdine University.
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