When Unsecured Is a Good Thing

/ BY / Credit Cards

We’ve been hearing a lot these days about the importance of using secured sites and secured technology when conducting any financial business online or in person. But do you know there’s one circumstance in which unsecured is often—but not always--a desirable option?

I’m talking about qualifying for an unsecured credit card.

First a bit of clarification; unsecured credit cards actually have nothing to do with the safety of your transactions when you use the card or with the level of security maintained by the bank that issues the card. In this case, secured vs. unsecured refers to whether or not you have to open a bank account with the card issuer and maintain a certain balance in it to qualify for a credit card.

 A secured credit card is one that is backed up by this type of bank account. (The bank wants to make sure that it gets paid, and will take the money out of your account if you do not pay your credit card bill.) An unsecured card is issued without the bank requiring you to put the money into that special account. It’s usually available only to people who have good credit.

If you’ve managed to score an unsecured credit card, congratulations! You’ve obviously been doing some things right so your credit score is good. To qualify for an unsecured credit card, you usually have to maintain a record of:

  • Paying your bills (credit card, loans, mortgage) on time
  • Paying at least the minimum balance on your credit card bills
  • Keeping your credit to debt ratio low (not spending up to the limit on all of your lines of credit)

If your credit is good enough to earn an unsecured credit card, your credit limit is likely to be higher than it would be if you had to use a secured credit card. Your rate of interest may be lower as well, and you may have more options in choosing from various card offerings.

When it’s not a good deal

There are a few unsecured credit cards available to people with fair to poor credit, but you’re much better off without them. They often charge outrageous upfront fees—one card I checked out wanted $95 of your hard earned money up front—and have very high interest rates and very low credit limits. The previously-mentioned card had an APR of 36 percent and offered a credit limit of only $300.

Those types of unsecured credit cards are no bargain. If you have bad credit, you’re better off going with a secured card until you can improve your credit score. Just make sure that you obtain a secured card from a bank that reports your account activity to the credit bureau—not all of them do.

Choosing the best unsecured card

Whether you likely to qualify for a secured or unsecured credit card, you can start your search right here at creditcardxpo.com. Before you apply, make sure to read the offer carefully for details about:

  • Any yearly or monthly fees associated with the card
  • The interest rate (the offers here start as low as 8 percent APR)
  • Any rewards or cash back offered
  • Late fees and penalties
  • Credit limit

If you can get an unsecured card, you’re likely to have more attractive options, so you’ll also want to consider what’s important to you when using a card. Do you want cash back on your purchases? To accumulate airline miles or other rewards?

Maintaining a good credit score should have some rewards. Being able to qualify for an unsecured credit card is one of them.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. CreditCardXpo.com recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.