The difference comes down to whether you put down a cash deposit
A secured credit card requires you to deposit cash with the card issuer before you can use it. That deposit becomes your credit limit — if you deposit $500, you get a $500 limit. An unsecured credit card requires no deposit. The issuer extends credit based on your income, credit history, and other factors they evaluate themselves.
The deposit on a secured card is not a fee you lose. It sits in a savings account at the bank, earning a small amount of interest. You keep it the whole time you hold the card. If you stop paying your bill, the issuer can take money from that deposit to cover what you owe, but otherwise it is yours.
Most people with established credit use unsecured cards. Secured cards exist mainly for people rebuilding credit after a gap in history, a missed payment, or a low credit score. Both types work the same way once you have them — you make purchases, receive a bill, and pay it back.
Key Takeaways
- Secured cards require a cash deposit that becomes your credit limit; unsecured cards do not require a deposit and your limit is set by the issuer.
- Your deposit on a secured card stays in a bank account and earns interest — it is not a fee, and you keep it as long as the account is open.
- Secured cards are designed for people with no credit history or credit scores below 600, while unsecured cards are for people with fair credit or better.
- Both secured and unsecured cards report to credit bureaus, so using either one responsibly will build your credit score over time.
- Some secured cards convert to unsecured cards after you demonstrate responsible use, usually within 18 months.
When you would use a secured card
A secured card makes sense if you have no credit history at all — you are new to the country, a young adult opening your first account, or you have not borrowed money before. It also makes sense if your credit score is very low (usually below 600) because you missed payments or defaulted on a loan in the past. Most unsecured card issuers will not approve you in those situations.
Secured cards are easier to get approved for because the issuer's risk is lower. Your deposit covers part or all of what you might owe. This means you can build a credit history even when your past is blank or damaged. As long as you make on-time payments, the card issuer reports that to the credit bureaus, and your score improves.
The deposit amount is up to you, within limits set by the card issuer. Most secured cards let you deposit between $500 and $2,500. Some allow higher deposits. You do not have to deposit the maximum — if you deposit $750, that is your limit.
When you would use an unsecured card
An unsecured card is the standard option if you have a credit score of 600 or higher, a steady income, and a reasonable history of paying bills on time. Most people with established credit use unsecured cards because there is no deposit to tie up.
Unsecured cards often come with rewards — cash back, points, or travel miles — while secured cards rarely do. Unsecured cards also tend to have lower interest rates and annual fees, though this varies by issuer and your credit profile. If you may have access to for an unsecured card, it is usually the better choice.
The downside is that unsecured card issuers are pickier about who they approve. They look at your credit score, income, existing debt, and payment history. If any of those are weak, you may be denied. That is why people rebuilding credit often start with a secured card instead.
How deposits work on secured cards
When you open a secured card, you choose how much to deposit. The issuer holds that money in a separate savings account, usually earning a small interest rate (often 0.01% to 0.05% annually, though rates change). You can see the balance in your online account, and the interest accrues to your deposit, not to you as a separate payment.
Your deposit is not your payment. When you use the card to buy something, you receive a bill just like with any credit card. You pay that bill from your regular checking account. The deposit stays untouched unless you miss a payment or close the account.
If you close the account in good standing, the issuer returns your full deposit plus any interest it earned. If you miss payments, the issuer may use the deposit to cover what you owe. Some issuers will freeze your account before taking the deposit, giving you a chance to catch up. Read your card agreement to understand the exact policy.
Converting a secured card to unsecured
Many secured card issuers will convert your account to an unsecured card after you use it responsibly for a set period — usually 18 months to 2 years. This means your deposit gets returned to you, and your credit limit may increase based on your payment history and income.
Conversion is not automatic. Some issuers do it on their own schedule; others require you to request it. Check your card agreement or call the issuer to find out their policy. When conversion happens, your deposit is released within a few business days, and you keep the card with a new unsecured status.
Not all secured cards convert. Some issuers keep them as secured products indefinitely. If conversion matters to you, ask about it before you open the account. It is one factor to consider when choosing between different secured card offers.
Fees and interest rates on secured vs. unsecured cards
Secured cards often have higher annual fees than unsecured cards — sometimes $25 to $95 per year. This is because the issuer takes on more administrative work and the cardholder is higher risk. Some secured cards have no annual fee, so compare before you choose.
Interest rates (called APR, or annual percentage rate) are usually higher on secured cards too. A typical unsecured card might charge 15% to 25% APR, while a secured card might charge 18% to 30%. Again, this varies by issuer and your credit profile. The better your credit, the lower the rate you will be offered.
The good news is that if you pay your full balance every month, the interest rate does not matter — you pay no interest at all. Many people use secured cards specifically to build credit without carrying a balance, so the APR is irrelevant to them.
How both types report to credit bureaus
Both secured and unsecured cards report your payment history to the three major credit bureaus: Equifax, Experian, and TransUnion. This is how using either card builds your credit score. The bureaus track whether you pay on time, how much of your limit you use, and how long you have had the account open.
Payment history is the single biggest factor in your credit score — it makes up 35% of the calculation. Using a secured card and paying every bill on time will raise your score faster than not using credit at all. After 6 to 12 months of on-time payments, you should see your score improve noticeably.
The type of card — secured or unsecured — does not matter to the credit bureaus. They care only about whether you pay on time and how responsibly you use the credit available to you. A secured card builds credit just as effectively as an unsecured one.
Frequently Asked Questions
Can I get an unsecured card if I have no credit history?
It is difficult but not impossible. Some issuers offer unsecured cards to people with no credit history if they have a steady income and a bank account in good standing. However, most will deny you or offer a very low limit. A secured card is the faster, more reliable path to building credit from scratch.
What happens to my deposit if I miss a payment?
The issuer may use your deposit to cover the missed payment, though most will contact you first and give you time to pay. Some freeze your account before touching the deposit. Check your card agreement for the exact policy. Missing payments also damages your credit score, so it is important to pay on time.
Is the deposit on a secured card the same as a down payment?
No. A down payment is money you lose or explore toward a purchase. Your secured card deposit stays in a bank account and is returned to you when you close the account. It is collateral, not a fee or payment.
How long does it take to convert a secured card to unsecured?
Most issuers convert after 18 months to 2 years of on-time payments. Some do it automatically; others require you to request it. Check with your issuer about their timeline and process. Conversion is not may provide — some secured cards never convert.
Can I use a secured card to build credit if I already have an unsecured card?
Yes. Having multiple cards in your name, as long as you pay all of them on time, can actually help your credit score because it shows you can manage different types of credit. However, opening many cards in a short time can temporarily lower your score, so space out new accounts if possible.