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There are many definitions of this term in the financial market and a lot of confusion. Strictly speaking, an “unsecured credit card” is a similar concept to an unsecured loan. Lenders will give you credit and advance money on an unsecured basis if you have a good credit history and have a high credit score. Many so called personal loans are “unsecured” in that they are approved solely on the basis of the information contained in your credit report that indicates you are a responsible borrower and a sound risk.
An unsecured credit card is generally issued to people with a good credit history and good credit score who have demonstrated the ability over time to manage their borrowing and debts responsibly and have repaid any money owed on time.
Some credit card companies say they offer “unsecured credit cards” for people with bad credit histories. These “unsecured credit cards” are just another name for the “bad credit credit cards” available from many providers. They are “unsecured” in the sense that they do not require you to deposit any form of cash guarantee or put up any assets against the future debt.
These credit cards are only issued after the provider has checked your credit history and while you are not guaranteed to be accepted, they are the best hope you have of getting a credit card if your credit score is poor. If your bad credit history is quite old (say at least 18 months ago) and you’ve been keeping things under control since, it might be worth applying for this type of “bad credit unsecured credit card”.
Credit limits for these cards will normally be low and the typical Vanquis Visa card APR is 39.9%. However, these unsecured credit cards will help you rebuild and repair your credit file provided you conduct the account on a responsible basis and make payments regularly and on time.
A “secured credit card” is similar in concept to a secured loan. Homeowners for example can get substantial loans by using their property as security for the loan. The lender knows that, if the borrower defaults on loan payments, they can recover what is owed to them by simply selling the house and hence the loan is “secured” against that asset.
The secured credit card is similar in that it requires you to deposit an amount of cash appropriate to the credit limit you want. Secured credit cards work just like “normal” credit cards, except that you must pay a deposit to the credit card issuer before they will issue you with the card. The deposit is there to give the card issuer the security of knowing that, should you be late in paying or not make repayments, part of all of that deposit will be used to pay the debt you owe.
You cannot touch those deposited funds while your credit card account is active. Your credit limit is partly determined by the amount of the deposit. A deposit of £1,500 for example would be sufficient for you to be set a credit limit of between £1,000 to £1,500. Some providers demand that the deposit is 100% of the credit limit you require.
