If you’re trying to get your financial ducks in a row, you might have heard of “secured debt” and “unsecured debt.” It’s important to understand what these terms mean.
In particular, knowing what unsecured credit is can help you apply for the right type of credit card — and to use it wisely so you can avoid extra fees and debt.
Learn what unsecured credit cards are, how they differ from secured cards, and how to get one.
How the Experts Define an Unsecured Credit Card
Unsecured credit cards have one key feature: There is no collateral required when using this type of credit.
Unlike a secured card — where you deposit cash that establishes a credit limit— an unsecured credit card relies entirely on your creditworthiness. Lenders look at your credit score, payment history and income to decide both whether you qualify for an unsecured card, and how much credit they’re willing to extend.
Should You Get an Unsecured Credit Card?
When you define unsecured credit card, you’re talking about a tool that can help build credit. However, it also carries responsibilities for which some people might not be ready.
Here are the pros and cons of unsecured cards:
Pros
- There is no deposit required. Unlike secured cards, you don’t have to put down cash up front.
- There is the potential for higher credit limits as your credit improves.
- You get the opportunity to build your credit score if used responsibly.
- Many cards come with rewards, including cash back or travel perks.
Cons
- They are harder to qualify for if your credit is poor or nonexistent. In that case, a secured credit card or a credit-builder loan might be a better starting point.
- Interest rates can be higher than for secured cards, especially if your credit score isn’t stellar.
- Carrying a balance can lead to serious debt if you’re not careful. If you’re worried about that risk, try becoming an authorized user on someone else’s card to build credit more safely.
- Approval depends heavily on your credit profile. If you can’t get approved now, focus on improving your credit first, then revisit applying later.
If you’re still building or rebuilding your credit, consider an alternative that can help you qualify for a card without collateral in the future. But if you have a steady income and a fair to good credit score, an unsecured credit card might be a good fit.
How to Get an Unsecured Credit Card
Once you understand how experts define unsecured credit cards, the next logical step is figuring out how to actually get one. Follow these steps to apply for an unsecured credit card.
1. Check Your Credit Score
Since an unsecured card doesn’t require a deposit, lenders rely on your creditworthiness to decide if they should give you a card.
Pull your free credit report from the official website and look for errors before applying for a card.
2. Compare Your Options
Not all unsecured cards are created equally, so shop around to find the best card for your needs.
Some cards are geared toward rebuilding credit, while others cater to people with good-to-excellent credit.
More importantly, check the annual fees, annual percentage rate (APR) and whether the card offers perks such as cash back or rewards.
3. Apply Carefully
It’s tempting to apply to every unsecured credit card you can find. But sending applications to multiple credit card companies won’t really increase your chances of getting a card. If anything, it could hurt you.
Each application triggers a hard inquiry into your credit, which can temporarily lower your credit score. Instead of sending applications everywhere, apply for one or two cards for which you are most likely to qualify.
4. Understand the Fine Print
Unsecured credit cards often come with hidden “gotchas,” such as:
- Balance-transfer fees
- Late-payment penalties
- Annual fees
Always read credit card contracts in full. It’s boring, but reading through the fine print now can save you frustration later.
If there’s anything you don’t understand, it’s important to do further research or talk to the credit card issuer instead of shrugging it off.
5. Spend Responsibly
Getting approved is just the first step. Unsecured credit cards are powerful financial tools, and you need to use that power wisely.
Pay your monthly bill on time, keep your utilization under 30% and use the card regularly to build credit history over time.
Building Credit the Smart Way
If you are ready to use an unsecured credit card wisely, move forward and apply. However, if you’re not quite ready to take on an unsecured credit card, that’s okay.
Secured credit cards, credit-builder loans and becoming an authorized user on someone else’s account are all solid stepping stones to establishing a strong credit history.
The key is to choose the option that matches your current financial situation and goals, then stick to responsible credit habits so you can qualify for better opportunities down the road.
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