Secured and Unsecured Credit Cards

The difference between secured and unsecured cards

The two major types of credit cards are the secured and the and unsecured card. Both of these can be used to pay for goods and services. They both have credit limits as well as fees and costs involved in using them. The unsecured card is based on the customer's good credit and is secured simply by a "promise to pay." The secured card, however, has a savings account or CD attached for security. If the card holder should default on payments the issuer can take the money on deposit as payment.

For secured cards, the card issuer has a security deposit to cover any unpaid bills and is assured of getting paid while the user has the convenience of a credit card. If the borrower defaults on a secured loan, the issuer can use the deposit to pay the balance.

An unsecured card does not require a deposit. Unsecured credit cards are for individuals with good credit. An unsecured credit card is issued based on the strength of the borrower's character, past use of credit and ability to repay. However, if you default on your repayments you could end ruining your credit.

Minimum deposit requirements can vary among companies. Most issuers will accept applicants with a deposit between $100 and $500.

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