Secured Credit Cards vs. Unsecured Credit Cards

When it comes to managing your finances, credit cards can be a useful tool. They provide convenience, flexibility, and the opportunity to build your credit history. However, not all credit cards are created equal. There are two main types of credit cards: Secured and unsecured. Understanding the differences between these two options is crucial in making the right choice for your financial situation.

Secured credit cards require a security deposit that acts as collateral for the credit limit. This deposit is usually equal to the credit limit or a percentage of it. On the other hand, unsecured credit cards do not require a security deposit. Instead, the credit limit is determined by the lender based on various factors such as credit history, income, and overall financial health.

Table of Contents

• Differences between secured and unsecured credit cards
• Pros and cons of secured credit cards
• Pros and cons of unsecured credit cards
• Factors to consider when choosing between a secured and unsecured credit card
• Best-secured credit cards
• Best unsecured credit cards

​​​​​​​Differences between Secured and Unsecured Credit Cards

Feature	Secured Credit Card	Unsecured Credit Card
Credit Requirement	Lower credit score is required	Higher credit score is required
Interest Rate	Typically, higher interest rate	Typically, lower interest rate
Security Deposit	Required	Not required
Credit Limit	Lower credit limit	Higher credit limit
Approval qualification	Easier to qualify with poor or no credit	Considers your credit score, income and credit history

Pros and Cons of Secured Credit Cards

Pros:

• Unlike traditional credit cards, secured cards require a security deposit, typically equal to your credit limit. This makes them easier to qualify, even with a limited or bad credit history.
• Secured cards report your activity to credit bureaus, which can help you build or improve your credit score over time.
• Some secured cards offer rewards programs for spending, but they're less common than unsecured cards.
• Your deposit serves as collateral and can result in higher credit limits than unsecured cards at the start.

Cons:

• You tie up your own money as a deposit, which is inaccessible until you close the account and pay off the balance.
• Secured cards often have higher annual fees and interest rates compared to unsecured cards.
• Initial credit limits on secured cards are usually lower than with unsecured cards, limiting your spending power.
• Secured cards typically offer fewer perks and rewards compared to unsecured cards.

​​​​​​​Pros and Cons of Unsecured Credit Cards

Pros:

• Do not require a security deposit
• They are more common than secured credit cards
• Mostly offer better perks and rewards, lower fees, and lower interest rates
• They can help you build your credit history by making monthly payments on time

​​​​​​​Cons:

• Riskier to the lender than secured cards. The higher your credit score, generally the more favourable your terms will be
• They are usually for people with good credit
• May have higher interest rates than secured cards
• They may have lower credit limits than secured cards

​​​​​​​Factors to consider when choosing between a Secured and Unsecured Credit Card

Choosing between a secured and unsecured credit card depends on your financial situation and goals. Here are some key factors to consider:

1. Your credit history:

• Secured credit cards: Ideal for people with limited or bad credit history. They are easier to qualify for because you secure the credit limit with a deposit. Responsible use can help build credit.
• Unsecured credit cards: Typically require a good or excellent credit history. Offer higher credit limits and potentially better rewards and perks.

2. Your budget:

• Secured credit cards: Deposit amounts can be an upfront financial burden. Interest rates and fees might be higher compared to unsecured cards.
• Unsecured credit cards: No upfront deposit is needed. However, responsible spending is crucial to avoid high interest charges and debt.

3. Your financial goals:

• Secured credit cards: Good for building a credit history and establishing responsible credit habits. Useful for people who want to qualify for other forms of credit in the future.
• Unsecured credit cards: Offer a wider range of rewards programs, travel benefits, and cash-back options. More suitable for frequent travellers or those who spend heavily in specific categories.

4. Other factors:

• Interest rates: Compare APR (Annual Percentage Rate) on both types of cards. Secured cards might have slightly higher rates.
• Credit reporting: Ensure the card reports to major credit bureaus to help build your credit score.

Best Secured Credit Cards

1. IDFC FIRST WOW Credit Card

The IDFC FIRST WOW Credit Card is a great option for those who want a combination of rewards, privileges, and convenience. It is a popular choice for people who are looking for a card that does not charge any joining or renewal fees, offers reward points on everyday spending, and comes with some additional perks. Below is a breakdown of the card's key features and benefits:

• 4x reward points on every transaction that never expires and can be redeemed for various rewards like gift vouchers, statement credits, and more
• Up to 7.25% p.a. interest on Fixed Deposit (FD)
• 1% fuel surcharge waiver at all fuel stations across India, up to a maximum of ₹200 per month
• 50% off on BookMyShow tickets
• Personal accident cover of ₹2,00,000 and much more

Read IDFC FIRST WOW Credit Card full review.

2. SBI Unnati Credit Card

The SBI Unnati Credit Card is a good option for people who are new to credit or have a poor credit score. It has a number of features and benefits that can help you build your credit score and save money. Some of the features are:

• No annual fee for the first 4 years
• 1 Reward Point for every ₹100 spent
• ₹500 cashback on annual spends of ₹50,000
• 1% fuel surcharge waiver on fuel purchases between ₹500 and ₹3,000
• Accepted at over 24 million outlets worldwide
• Contactless payment feature for added convenience and security

Read more about Best Secured Credit Cards.

Best Unsecured Credit Cards

1. SBI Cashback Credit Card

The SBI Cashback Credit Card is a no-frills card that offers straightforward cashback on your spending. Here's a breakdown of its key features and benefits:

• 5% cashback on all online spending
• 1% cash back on offline spends
• The maximum cashback you can earn in a statement cycle is ₹5,000, combined for both online and offline spending

2. HDFC Millennia Credit Card

The HDFC Millennia Credit Card is a great option for people who want to earn cashback on their everyday spending. It has a low annual fee and offers a variety of features and benefits that make it a valuable card to have in your wallet. Here are some of the key features and benefits:

• 5% cashback on your spending at popular brands like Amazon, Flipkart, Myntra, Swiggy, Zomato, BookMyShow, Cult.fit, Sony LIV, Tata CLiQ, and Uber
• 1% cash back on all other spending except for fuel
• Up to ₹1,000 worth of gift vouchers every quarter
• Get 1,000 bonus cash points on payment of the joining fee
• Free lounge access and much more

3. Amazon Pay ICICI Credit Card

The AmazonPay ICICI Credit Card, issued by ICICI Bank in partnership with Amazon and Visa, is a co-branded credit card offering various benefits for frequent Amazon shoppers and those who prefer contactless payments. Here's a breakdown of its key features and benefits:

• 5% cashback on all your Amazon.in purchases if you are a Prime member and 3% if you are a Non-Prime member
• 2% cashback on Amazon Pay partner merchants
• 1% cashback on all other spending
• No joining fees or annual fees
• No limits on earnings for this credit card.
• No minimum redemption amount and no fees on redeeming earnings, and much more

Conclusion

In conclusion, choosing between a secured and unsecured credit card is a decision that should be based on your financial situation, credit history, and long-term goals. Secured credit cards can be an excellent option for individuals with limited or poor credit history, as they offer an opportunity to build or rebuild credit. Unsecured credit cards, on the other hand, provide more flexibility and convenience but require a stronger credit profile.

Consider factors such as your credit history, financial situation, and long-term goals when making this decision. Compare the pros and cons of secured and unsecured credit cards, and evaluate the requirements and benefits of different card options.