What Is an Unsecured Credit Card?

Want to know about Unsecure Credit Cards? If Yes, You are at the right place.

In this article, We are sharing all the information about Unsecure Credit Cards.

Credit cards are powerful tools for financing purchases and paying them off later. There are many types of credit cards, but they are categorized into two types: secured and unsecured. Secured credit cards require depositing money with the issuer, whereas unsecured credit cards do not. Most people think of A regular credit card when they hear the term.

Secured cards are typically available to people rebuilding their credit after financial mishaps or those who still need to get credit and are building it from scratch. Unsecured cards range from credit-building ones with few benefits to luxury ones with benefits such as airport lounges.

If you’re applying for an unsecured card, you’ll often need a good or better credit score.

What is an Unsecured Credit Card?

Unsecured credit cards do not require collateral or deposits to obtain them. When approved, your credit card is issued with a specific line of credit that permits you to make purchases. The credit line is revolving, meaning you are assigned a credit limit. Your limit is maintained by making payments as you spend. A credit rating determines the rate of interest you receive on purchases, but you don’t pay immediately.

An unsecured credit card allows you to pay for your purchases later in full or in installments assigned by your credit card issuer. MasterCard and Visa are two of the most popular credit cards, giving you a wider range of spending options.

How Does an Unsecured Credit Card Work?

The unsecured credit card is a type of secured revolving credit account without collateral, an asset that a lender may repossess if the borrower fails to repay it.

Unsecured credit cards require the issuer to review your credit report, credit score, and other information from your application (such as your income and monthly rent payment). In addition to your credit history, you may also be considered if you are an existing customer of the company issuing the card.

The main difference between secured and unsecured credit cards is that unsecured cards do not require collateral. Based on the information reviewed by the issuer, your application will either be approved or denied. You can also find out your card’s interest rate and credit limit based on this information.

Your unsecured credit card balance is increased when you make purchases with it, and the amount is added to your account’s credit limit. Your available credit increases when you pay down your balance, so you can borrow repeatedly against your limit without obtaining a new credit card.

You receive a statement balance after all your transactions have been added up during the current billing cycle (usually a month long). Your card issuer will send you a statement approximately three weeks before your bill is due. A minimum payment can be made, a full payment can be made, a current balance can be paid, or you can make a payment somewhere in the middle.

The interest on your purchases won’t be charged if you pay the full balance of your statement every month. Paying less than the full amount, however, enables you to pay off the remaining balance over time by revolving your payments from month to month.

Especially if you use your credit card for a large or unexpected purchase, you may find it helpful to pay off your balance over time. Nonetheless, you will begin accruing interest on the unpaid portion of your account as soon as you carry over your unpaid portion to your next billing cycle.

How to Qualify for an Unsecured Credit Cards?

An unsecured credit card can only be obtained if you meet the financial and credit history requirements set by the issuer. There is a difference between cards when it comes to qualifications. 

A good to excellent credit score is typically required to qualify for the best credit cards. The interest rate on unsecured cards is higher because there is no collateral, which makes lending money riskier for the companies that issue them. It is possible to reduce the risk by establishing stricter approval requirements. Unsecured credit cards are only automatically excluded if your credit is fair or good, but you’ll have fewer choices.  

You can find out which cards you qualify for by checking your credit reports and scores before applying. The card issuer will usually consider one of your FICO scores when evaluating your application.

CREDIT RATING	FICO SCORE RANGE
Poor	300 to 580
Fair	580 to 669
Good	670 to 739
Very Good	740 to 799
Exceptional	800 to 850

It is now required to be 18 years old to get your credit card, but you can receive an authorized user’s credit card – such as your parents’ – earlier if you are eligible. Credit card applicants between 18 and 20 must also show evidence of independent income as part of the CARD Act 2009. 

How Do You Apply for An Unsecured Credit Card?

• The Comparison: Comparing the different unsecured credit cards available on the market is a good place to start. When evaluating the credit card, consider factors such as interest rates, annual fees, rewards programs, and credit limits.
•  Eligibility Check: Ensure you meet the eligibility requirements for each unsecured credit card. You may be required to meet credit score, income, and employment requirements.
•  Choose a Card: Choose an unsecured credit card appropriate for your financial goals and credit profile.
•  Checking Your Credit Report: The credit history of your credit card lender is of great importance when it comes to unsecured cards. Make sure your credit reports are accurate and current.
•  Prepare the Documentation: You will need recent bank statements, payslips, and proof of employment to gather the required documentation. These documents can make the application process more efficient if you have them available.
•  Apply Online: Go to the website of your chosen credit card issuer and fill out the online application.
•  Complete Application: Make sure you fill out the application form accurately, including personal information, financial information, and employment information.
•  Submit Application: Submit your application online once it is complete.
•  Review and Approval. The issuer of your credit card will review your creditworthiness and application. Your unsecured credit card will be sent to you once approved.

Pros and Cons of Unsecured Credit Cards

There are many benefits to using an unsecured credit card. An unsecured card allows you to choose from a wider selection than a secured card. A wide range of unsecured credit cards is available, from student cards to reward credit cards to cashback credit cards.

There is a pretty good chance you will be able to find an unsecured credit card to help you meet your spending goals.

The following are some additional benefits:

Pros of an Unsecured Credit Card

• Collateral is Not Required: No deposit is required when opening your account since your credit limit is based on your creditworthiness.
•  Benefits and Rewards are Better: Unsecured credit cards usually offer more lucrative rewards, although this depends on the card. The unsecured credit card industry offers many very attractive introductory offers to attract applicants, including bonus miles, points, and cashback, as well as a 0% intro APR period, which allows you to make interest-free purchases for a limited time before the regular APR kicks in.
•  Few (or avoidable) fees. Unsecured credit cards tend to have lower fees than secured cards. Many unsecured credit cards do not charge an annual fee, and many do not charge foreign transaction fees.

Despite the benefits of unsecured credit cards, some users prefer secured cards due to a few drawbacks.

Cons of an Unsecured Credit Card

• Approval is More Difficult: Credit scores and credit histories are required to apply for unsecured credit cards. Credit cards may be difficult to qualify for if you have a credit history or good credit.
•  Spending Beyond Your Means is Easier: Since unsecured credit cards are not secured by collateral, they are riskier for lenders; however, they are also riskier for the cardholders – since they have more spending power. You can have a credit limit that is thousands of dollars. You need the ability to pay off your card bill in full at the end of every month when you use your card for purchases. You may find yourself in a sticky situation if you do not pay interest on your loan.

Who is An Unsecured Card Best For?

An unsecured credit card will likely be approved for someone with bad credit or no credit history. If you can pay a security deposit in advance, secured credit cards are the best way to build or repair credit with little risk.

Unsecured cards come with various benefits and fees, so there is a card for every type of spender. Before applying for one, ensure your card choice fits your regular spending patterns and financial goals.

Some examples of consumers who might be interested in using an unsecured credit card include the following:

• Budgeting: You can maximize your everyday purchases with cash back on an unsecured credit card if you are already aware of how much you spend every month. It doesn’t have to be an arduous task to pay for a massive grocery haul your family endures occasionally. The program offers fixed percentages on eligible purchases or tiered categories based on the things you are most likely to spend a lot of time on each month, like groceries, dining, and gas.
•  A Frequent Flyer: A travel rewards credit card allows frequent travelers to earn miles and points to reduce the cost of travel. Travel credit cards come with a hefty annual fee, but perks like airport lounge access or generous sign-up bonuses can offset those fees. A travel card typically requires a good to excellent credit score (670-850), which makes it difficult for someone with a credit score below 670 to qualify.
•  The Business Owner. The purpose of business credit cards is to help businesses and entrepreneurs take advantage of everyday spending. The program is not limited to merchants; freelancers can also participate in generous rewards programs and track expenses. Many business credit cards provide great value rewards, do not charge foreign transaction fees, do not charge annual fees, and can offer significant sign-up bonuses. The rewards and benefits business credit cards offer vary from one card to another, but you typically need a good to excellent credit score (670-850) to qualify.

Alternatives to Unsecured Credit Cards

Unsecured credit cards require that you meet a card issuer’s credit and other requirements. Here are some alternatives you can consider if you are denied an unsecured credit card or want to build your credit score before applying. 

• Secured Credit Cards: Secured credit cards allow you to establish or rebuild your credit and show that you’re a reliable payer. Security deposits are typically required to get a secured credit card, which acts as your credit line. If the issuer offers an unsecured card, you can graduate to it over time if you use it responsibly. 
•  Store Credit Cards: Retail stores often offer branded credit cards with lower credit requirements than traditional unsecured cards. There are store cards that can only be used at physical locations or online shopping sites of a particular retailer, as well as those that can also be used elsewhere. Ensure you don’t overspend when you receive a promotional offer from the store. 
•  To Become an Authorized User: Adding yourself as an authorized user to someone’s credit card account is another way to establish a credit history. Most often, the person has excellent credit and is a loved one or friend. 
•  Personal Loan Repayment. Personal loans offer another method of building credit and acquiring funds quickly. A personal loan typically has a lower interest rate than a credit card (though it doesn’t come with a grace period allowing you to avoid interest entirely, unlike a credit card). Credit scores and histories are important in loan approvals, terms, and rates, just as with credit cards. 

Who Should Get an Unsecured Credit Card?

An unsecured credit card can be an excellent option in many cases.

• Credit Score: The approval of unsecured credit cards usually depends on your credit score, so it’s important to have a good or excellent rating.
•  Emergency Expenses: Unsecured credit cards are great for storing cash in an emergency, such as a medical bill or a home malfunction. 
•  Rewards. Several unsecured credit cards offer rewards when you reach certain spending thresholds. Cashback or travel perks can be earned with rewards credit cards, depending on the dollar requirements and rewards type. 

FAQs

Do Unsecured Credit Cards Build Credit?

Most unsecured credit cards report your account activity to all three credit bureaus, helping you build credit. However, some unsecured credit cards for bad credit may only report to one or two credit bureaus, so you may only be able to access some of your credit options. To determine whether a card can help you build credit if your credit is bad, check out the card’s features before applying.

Do Unsecured Credit Cards Have Limits?

There is a credit limit on unsecured credit cards. The credit limit on a credit card is assigned when an application is approved. Regarding credit cards, your credit limit is the total amount you can spend before paying down your full balance. Often, credit card issuers determine your credit limit based on your credit profile and existing credit lines. 

Credit utilization ratios and credit scores can be negatively affected if your credit limit is maxed out.

Will Unsecured Credit Cards Hurt My Credit?

You can damage your credit with either secured or unsecured credit cards, depending on how you use them. When used responsibly, secured and unsecured credit cards could help you improve your credit score. However, the opposite could be true if you miss payments or overspend. 

You should also remember that your credit score may temporarily drop if you apply for any credit card. You’ll need a good credit history because applying requires a hard credit check, also known as a hard pull or hard inquiry. Your credit report will show the results of hard credit checks rather than soft ones.