Difference Between Secured and Unsecured Credit Cards
There are mainly two types of credit cards, secured and unsecured. As the names suggest, secured cards are issued against some security while unsecured cards do not have any such security against them.
The convenience of carrying plastic cards instead of cash has facilitated all of us but this has developed the habit of spending more than required. This is why many of us fall in debts when we cannot pay off our credit card bills and this causes loss to the credit card companies as well. This is why these companies thought of coming up with secured credit cards.
Secured credit cards are issued against security of certain amount and the card limit depends on the amount deposited as the security. This has helped the credit card companies in reducing their losses because if a person is not able to pay his or her bills then the security money is taken by the bank against the bills. This has also reduced the complications in the process of allotting credit cards. The person has to simply deposit the cash and a credit card is issued against that cash.
Unsecured credit cards are generally issued to the people with good credit history so that the chances of inability to pay the bills are reduced. The rate of interest is fixed depending upon the credit score of the person. Better scores means lower rate of interest and higher limit. A customer needs to pay the bill monthly or annually but in case of annual payments he has to pay the interest on the balance.
Some of the basic differences between unsecured and secured credit cards are:
- People with poor credit history are issued secured credit cards while people with good credit score are issued unsecured credit cards.
- You need not deposit any cash against the issuance of the credit card in unsecured cards while secured cards are issued against cash security.
Secure credit cards are a great way to improve the credit ratings and people with bad credit scores can use it for doing so.