Credit cards are a dime-a-dozen, meaning there are many options to choose from. Each credit card has features that make it unique. These features are utilized to entice consumers to sign up for specific credit cards. To ensure you get the most out of your credit, you need to know the different types available. The two types you need to focus on the most is secured and unsecured credit cards. Learn more about these two options by reading the article below.
What Is Secured?
The Merriam-Webster Dictionary defines secure as “free from the risk of loss”. When secure is utilized with a credit card, it is easy to see what it means. A secured credit card is designed to eliminate losses for credit card companies. When a consumer signs up for a secured credit card, they must deposit a specific amount of money into their account. The initial deposit validates the credit card, so it can be utilized to make purchases.
What Is Unsecured?
The Merriam-Webster Dictionary defines unsecured as “not protected from the risk of loss”. When you combine the term “unsecured” with a credit card, you get a credit card that is not secured by collateral. The unsecured credit card is extremely popular for many reasons. One of these reasons is it does not require collateral, which means it is not secure. Since you do not need to put up collateral for an unsecured credit card, you can start utilizing it soon after activation.
Like secured credit cards, the unsecured card has a broad range of advantages and disadvantages for both cardholders and lenders. One of the biggest disadvantages for consumers is a good credit score and history is required to obtain an unsecured credit card. If you do not have a good credit score, you probably won’t be approved for this type of credit card.
Lenders of unsecured cards base the credit limit on the customer’s credit history, income, and other factors. Secured credit cards, on the other hand, have a credit limit that matches the collateral. For example, if you deposit $200 into your account, your credit limit for a secured credit card will be $200. If you have an outstanding credit history, you can obtain an unsecured credit card with a large credit limit. If you do a lot of traveling, you should consider buying credit card travel insurance coverage. In the event, you lose your credit card during your travels.
Many factors determine the interest rate for a credit card. All unsecured credit cards have a set annual percentage rate (APR). The APR will vary from one lender to another. To determine the daily interest rate, you must divide the APR by 365.
Secured cards may or may not have an APR. Some lenders will charge an annual fee, ranging between $25 and $99. The APR for secured credit cards is generally higher than unsecured credit cards. Again, credit card fees will vary from one lender to another.
Consumers must take precautions when obtaining secured cards because some lenders charge fees that will consume a lot of the available credit.