What is an Unsecured Credit Card?

When choosing the best unsecured credit cards, things like the average, damaged or limited credit histories, cards with minimized fees for the credit issuers are looked out for.

If you’re looking for unsecured cards for bad credit, you’re probably trying to avoid having to pay the deposits that secured cards require. That’s ok.  

In this article, you should expect to find all you need to know about what an unsecured credit card is. You should expect to find how to get an unsecured credit card, the difference between an unsecured and secured credit card. This promises to be enlightening. Keep reading. 

Check Out: What is a Good APR on a Credit Card? 

What is an Unsecured Credit Card? 

Unsecured credit cards have been made popular because secured loans, such as mortgages or auto loans, unsecured credit cards are not directly connected to property that a lender can seize of the cardholder fails to pay.

They mostly do not make use of any collateral and as such, the issuers of unsecured credit cards must make use of other means like the courts or garnishment to collect unpaid debts.  

Unsecured credit cards can be used to pay for purchases and are subject to interest and late fees. With unsecured cards, you can offset your risk by charging high annual percentage rates, steep penalties for late payments, and regular maintenance fees.

Unsecured cards usually have low credit limits, though they are typically higher than the limits on secured cards. 

An unsecured credit card is simply a card that doesn’t require a deposit, or collateral, to open an account. This is the most common type of credit card.

People with unsecure credit cards are somewhat risky for creditors. They have a greater chance of defaulting than someone with a higher score, which is why applicants with unsecured credit cards are often denied new cards. 

Check Also:  What is an Unsecured Credit Card | Meaning & How it Works

Who Can Get an Unsecured Credit Card? 

They designed unsecured credit cards for people who have trouble getting approved for regular cards. These credit cards have lower approval requirements, so they may approve you for one even with a fair credit score.

They can offer an excellent opportunity for rebuilding or establishing your credit, but they often have drawbacks like high interest rates and fees. They designed credit cards for people with fair credit to offer a second chance while also protecting the lender against the possibility of default. 

This means that if you are interested in rebuilding your credit, you can very comfortably get an unsecured credit card.  

What is the Difference Between Unsecured and Secured Credit Cards? 

A secured credit card, unlike the more common unsecured cards, requires cardholders to put down a deposit – typically 50% to 100% of the credit limit – to insure the account in case the customer fails to make payments.

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If you miss a monthly payment on a secured card, the creditor may use money from the deposit to pay the bill.

Most secured credit cards have very low starting credit limits. These types of accounts are for people with bad or no credit as a way to build their scores and eventually move to unsecured cards. From a business perspective, it limits the amount of risk that a credit card company assumes. 

An unsecured credit card on the other hand is a card that doesn’t require a deposit, or collateral, to open an account. It is regarded as the most common type of credit card.

People with unsecure credit cards are somewhat risky for creditors. They have a greater chance of defaulting than someone with a higher score, which is why applicants with unsecured credit cards are often denied new cards. 

Read Also: What is a Secured Credit Card And How Does It Work? 

How Can You Choose an Unsecured Card? 

If you have fair credit and are looking for an unsecured
credit card, research these key features before applying: 

  • APR 
  • Annual fee 
  • Additional fees and charges 
  • Credit limit 
  • Ability to increase credit limit 
  • Penalty APR 
  • Foreign transaction fee 
  • Reporting to the three credit bureaus 
  • Rewards 
  • Cardholder benefits 
  • Prequalification 

Unsecured credit cards for fair credit typically have APRs that are 10 to 15 percentage points higher than traditional cards for people with good credit scores. Carrying a balance on a high-interest card can cause significant interest charges, so you should find a card with the lowest rate possible. 

Most credit cards for fair credit charge an annual fee to maintain the account, either in one enormous sum or divided into monthly installments.

Many charges a variety of additional fees as well, including monthly maintenance charges, account verification fees, and credit limit increase fees.

All of these fees are charged directly to your balance, where they will accrue interest just like a purchase. Even if you never use the card for purchases, just owning it and incurring fees will cost you money. 

How to Apply for Unsecured Credit Cards 

  • Review your credit reports to make sure there aren’t any errors. 
  • Find a card that meets your needs. Check the list above for suggestions on good cards for you. 
  • Check the company’s website to see if the card offers preapproval before applying. This will give you a better idea of whether you’ll be approved. 
  • Read the terms and conditions. 
  • Apply on the company’s website. The application might lower your credit score slightly as issuers usually perform hard credit inquiries at this point. 
  • Once you receive your card, start establishing good habits by using your card the right way. 

Types of Unsecured Credit Card 

Capital One QuicksilverOne Cash Rewards Credit Card 

  • 1.5%- Cash Back on every purchase, every day 
  • Annual Fee- $39 
  • APR- 26.99% (Variable) 

With the Capital One- QuicksilverOne- Cash Rewards Credit Card, there are no reward caps. You simply get 1.5% back on everything that you buy with the card. That’s impressive for a card that considers applicants who have what Capital One considers fair credit.

This card has a $39 annual fee. But with a 1.5% cashback return, you’ll need to spend only $2,600 to earn that much in rewards with this card, which comes out to spend about $217 a month for a year.

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If you plan on spending more than that each month, then this card could be a good option. 

Capital One Platinum Credit Card 

  • Credit Needed- 580-740 
  • Annual Fee- $0 
  • APR- 26.99% (Variable) 

The Capital One- Platinum Credit Card has no annual fee or foreign transaction fees. And you’ll get extra benefits like travel accident insurance and extended warranty coverage on eligible purchases. But you won’t earn any rewards. 

Chase Freedom- Student Credit Card 

  • 1% on all purchases 
  • Credit Needed- 670-850 
  • Annual Fee- $0 
  • APR- 14.99% Variable 

Discover It- Student Chrome 

  • 2% cashback at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter. 
  • 1% cashback on all other purchases – automatically. 
  • Credit Needed- 580-740 
  • Annual Fee- $0 
  • APR- 12.99% – 21.99% Variable APR 

Journey Student Rewards from Capital One 1% Cash Back on all purchases 

  • 0.25% Cash Back bonus on the cash back you earn each month you pay on time 
  • Credit Needed 580-740 
  • Annual Fee- $0 
  • APR- 26.99% (Variable) 

The Petal 2 Visa Credit Card  

Petal has kicked annual fees, late-payment fees, returned-payment fees, and every other fee to the curb. That’s impressive for any card, but especially for an unsecured card that considers consumers who have limited credit.

Important note: There might not be any fees, but the card still charges interest. 

Deserve Pro MasterCard

With the Deserve Pro MasterCard, you’ll earn 3% cashback on travel purchases and 2% cashback on dining purchases.

It’s important to note that the extra cashback on these bonus category purchases only applies to the first $500 of purchases made each billing cycle.  

Credit One Bank Platinum Visa  

In using this unsecured credit card, the issuer offers the chance to see if you prequalify for the card before you apply.

This is a soft credit check, meaning it won’t affect your scores and you can find out if you prequalify in less than a minute.

Just keep in mind that prequalification doesn’t guarantee the terms and eventual approval.

The Credit One Bank- Platinum Visa- for Rebuilding Credit lets you earn rewards while you build your credit.  

Capital One QuicksilverOne Cash Rewards Credit Card 

With this unsecured credit card, only people with fair to good credit may be eligible for this unsecured card that charges a $39 annual fee.

You’ll earn a flat rate of 1.5% cashback, which is on par with some of the top rewards credit cards.  

Capital One Platinum Credit Card 

Why this is one of the best-unsecured credit cards: The Capital One Platinum Credit Card is a solid entry-level unsecured card for those with less-than-stellar credit.

You won’t pay an annual fee, and after six months of responsible payments, you’ll be automatically considered for a credit limit increase.  

Discover it- Student Chrome 

Why this is one of the best-unsecured credit cards? This card is designed for students who primarily spend on gas and dining. Cardholders earn 2% cashback at gas stations and restaurants, on up to $1,000 in combined purchases each quarter.

All other purchases earn unlimited 1% cashback. Discover will match all the cash back you’ve earned after your first year.  

Discover it- Student Cash Back 

Individuals with fair credit or who are new to credit may qualify for this card. Cardholders can earn 5% cash back on everyday purchases at different places each quarter like Amazon.com, grocery stores, restaurants, gas stations and when you pay using PayPal, up to the quarterly maximum when you activate.

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The card offers unlimited 1% cashback on all other purchases. There’s no annual fee and no late fee the first time you pay late.

At the end of your first year as a cardholder, Discover will match all the cashback you’ve earned. The card also provides free access to your FICO credit score and charges no annual fee.  

Journey Student Rewards from Capital One 

Why this is one of the best unsecured credit cards: For students with limited credit histories, the Journey Student Rewards from Capital One is designed like a crash course in credit cards.

You’ll earn 1% cashback on purchases with this unsecured card and 1.25% back for each month payments are made on time. Eno-, the Capital One- assistant, can help you manage your account and keep tabs on due dates. 

Should You Apply for an Unsecured Credit Card Now? 

Depending on your situation, it may be possible for you to skip a secured credit card and go with an unsecured one.

Here are a few examples of when this might work for you:

  • You have no credit history at all. Not all cards require a credit history. For example, the Petal- 2 Visa- Credit Card uses info like your banking information to determine whether you qualify. 
  • You’re a college student. There are several unsecured student credit cards that can help you build credit -some even offer rewards. You can compare student credit card offers on Credit Karma. 
  • You’ve had a bankruptcy. It’s possible to qualify for certain credit cards even if you have a bankruptcy on your credit reports. 
  • While each of these credit cards is targeted at people with limited or bad credit, you’re not guaranteed approval. Check where you’re at with your credit by looking at your credit scores, and then deliberate your options before deciding to apply. 

Frequently Asked Questions

How can you qualify for an unsecured credit card? 

Customers qualify for unsecured cards based on their credit history, their financial strength, and their earnings potential. 

Can I have an unsecured credit card for a wrong reason? 

Everyone has their own reason for wanting an unsecured credit card. Make sure your own reasons align correctly.  

Is an unsecured credit card better than a secured credit card? 

Each of the cards have their own advantages and disadvantages. Just make sure you know the functions of each before going to get it. 

What is the major feature of an unsecured credit card?  

With an unsecured credit card the only assurance a lender has that you will repay the debt is your creditworthiness and your word. 

Does an unsecured credit card build credit? 

An unsecured credit card can strengthen your credit score by helping you use credit wisely, and it’s a great card to start off with when you’re first learning to use credit. 

Conclusion 

A credit card is basically a thin rectangular piece of plastic or metal issued by financial institutions which lets you borrow funds from a pre-approved limit to pay for your purchases.

An unsecured credit card is an added advantage to all of the features of a credit card, especially credit-wise.

If you have been asking yourself “what is an unsecured credit card”, I hope this not just answered that question, but also made you understand all you need to know about using an unsecured credit card.  

References 

https://www.google.com/url?sa=t&source=web&rct=j&url=https://wallethub.com/credit-cards/unsecured/&ved=2ahUKEwj03P2D1JL0AhVr7OAKHc3CAoEQFnoECDAQAQ&usg=AOvVaw0uCjeVhQaeO5XWI7JCPpYt 

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.mastercard.us/credit-type/no-credit&ved=2ahUKEwj03P2D1JL0AhVr7OAKHc3CAoEQFnoECBAQAQ&usg=AOvVaw3f44aiSTatw1C4SG9-WQiF 

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.creditcards.com/credit-card-news/glossary/term-unsecured-credit-cards/&ved=2ahUKEwj03P2D1JL0AhVr7OAKHc3CAoEQFnoECC0QAQ&usg=AOvVaw3Ckeqw_dfEwwaKKxWcZYOi 

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.oneunited.com/unsecured-cards-vs-secured-cards-5-things-you-need-to-know/&ved=2ahUKEwj03P2D1JL0AhVr7OAKHc3CAoEQFnoECC4QAQ&usg=AOvVaw1uTr6-ZWolSdsGck_nb6tq 

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