Credit cards are common. According to the Federal Reserve Bank of Atlanta, 75.5% of consumers own at least one credit card, and some have a wallet. Using a credit card builds a credit history, which helps create your credit score. A good score would help you be approved for a loan with low-interest fees. That’s one reason credit cards are essential.
The question isn’t whether you should own a credit card, but what kind? There are two popular options: secured and standard credit cards. In truth, secured and unsecured credit cards have much in common. Both cards offer benefits, like the ability to borrow money when needed. And both present drawbacks, like interest charges. You should consider your circumstances and goals if you’re trying to decide between a secured card and a standard one.
Try a secured card if your credit score is low and you want to build it up. It can help because it’s designed for people with low or nonexistent credit. However, a standard card might be best if you’re looking for a credit card that offers a lower interest rate.
Both secured and standard cards can help improve your credit — you must pick the right option. This article discusses the benefits of both types to help you make the best decision.
What’s the Deal With Secured Credit Cards?
1. They Keep Consumers From Acquiring Debt
Secured credit cards carry fewer risks than standard ones. You must pay a security deposit to acquire the card, usually equivalent to the card’s credit limit. For example, if you put down $500, your limit will be $500.
The security deposit works as an insurance policy. If you default on a payment, your deposit will be used. This keeps consumers from acquiring debt that could negatively impact their credit score.
While paying a deposit to get a credit card isn’t ideal, the money will be returned if you keep your account in good standing and close your account.
44.7% of secured credit cards were opened by individuals without credit.
Because secured cards require a monetary deposit, they’re less risky to the issuer. That means getting approved is easier if your credit isn’t in good standing or you’re just starting to build credit.
4. They Sometimes Come With Extra Fees
Like standard credit cards, you might have to pay fees with a secured credit card, such as an application fee, balance transfer fee, etc. Before choosing your card issuer, make sure you do your research. Some secured cards don’t require an annual fee, or the cost is lower if they do.
5. They Can Improve Credit Score
There’s a common misconception that secured credit cards are like prepaid debit cards. Not so much. While your deposit determines how much money you must spend, secured cards — unlike prepaid debit cards — generally report to credit bureaus. This means your account history will be included in your credit report. So, if you keep your account in good standing, your credit will improve.
What’s the Deal With Standard Credit Cards?
1. They Usually Have Higher Credit Limits
If your credit is good, you’ll likely be approved for a credit card with a higher limit. While this can help you afford bigger purchases, there are risks. The higher the limit, the more money you can spend and the more debt you can acquire. That said, having a higher credit limit could be beneficial if you maintain spending discipline.
2. They Offer More Perks
Standard credit cards typically offer a wide range of rewards and benefits. For example, your spending can earn you miles for travel, and a good credit score could yield 0% APR offers. People with good credit can apply for other cards that offer even more benefits. Unlike secured cards, using a standard card could help you earn money back, thanks to all the perks.
3. They Require a Good Credit Score to Qualify
The main reason secured credit cards are popular is that they’re easier to get. Standard cards, on the other hand, require a certain credit score. To give you a ballpark, a good credit score is considered to be somewhere between 670 and 739. The better your score, the better the credit card you’ll be approved for.
Which One Should You Choose?
No one’s financial situation is the same, so different credit card choices are available. What works for your wallet might not work for your friends and vice versa.
When choosing between a secured and standard card, you should consider what type you qualify for. Then, shop around for the best card. Whether you’re shopping for a secured or standard credit card, you have options for which issuer you choose.
After you get your card, strive to spend wisely. Paying late or missing a payment entirely will negatively impact your credit score, whether you’re using a secured or standard card. At the end of the day, the only way to improve or maintain a good score is to adopt good spending habits. If you’re seeking help managing your money, there are many tools out there that offer financial management assistance.
