All credit cards are not the same, though. The two most commonly used types—secured and unsecured credit cards—are utilised for different purposes. Understanding how they differ will help you make good choices, especially if you’re a beginner to credit or recovering from credit problems.
What is a Secured Credit Card?
A secured credit card is a type of credit card that requires a security deposit to be applied as collateral for the credit limit, which is refundable. It is best suited for individuals who have no or minimal credit history.
Characteristics of Secured Credit Cards:
Here are a few characteristics of Secured Credit cards to know:
| Feature | Description |
| Security Deposit | Generally, most secured credit cards require a deposit between ₹5,000 and ₹25,000. |
| Credit Limit | Equal to the amount of the deposit. |
| Eligibility | Easier for applicants with poor/no credit history. |
| Credit Reporting | Transmitted to credit bureaus to establish credit. |
Example:
A candidate deposits ₹10,000 with their bank as a security deposit to obtain a secured credit card with a credit limit of ₹10,000. If the cardholder uses the card responsibly and makes timely payments for a period of 6 to 12 months, the bank may convert the card to an unsecured credit card and return the deposit.
What is an Unsecured Credit Card?
The most common type of credit card is an unsecured credit card that does not require a security deposit from the applicant. It is approved based on the applicant’s creditworthiness, income, and financial position.
Characteristics of Unsecured Credit Cards:
The key features you should keep in mind for unsecured credit cards are listed below.
| Feature | Description |
| No Deposit | Any security deposit or collateral is required for approval. |
| Credit Limit | Depending on creditworthiness. |
| Interest Rates | Typically, higher than secured cards. |
| Eligibility Criteria | Requires a good credit score (typically 700+ in India) |
Example
A salaried individual with a CIBIL score of 750 can obtain an unsecured credit card with a limit of ₹1,00,000, along with benefits such as airport lounge access, cashback, and reward points.
Key Differences: Secured vs Unsecured Credit Cards
Here is a comparison table that highlights the key differences between secured and unsecured credit cards:
| Feature | Secured Credit Card | Unsecured Credit Card |
| Collateral Required | Yes (refundable deposit) | No |
| Credit Score Requirement | Low or none | Medium to High (typically 700+) |
| Credit Limit | Dependent on the deposit | Dependent on creditworthiness |
| Approval Rate | High | Moderate to Low |
| Recommended For | New or credit-building users | Existing credit owners |
| Upgrade Options | Yes (to unsecured after good use) | Already unsecured |
| Rewards and Benefits | Limited | High (travel, cashback, insurance, etc.) |
Use Cases: Who Should Use What?
Case 1: Student
Suppose a student, Tom, has no credit history. He is new to getting a credit card. So, he decides to apply for a secured credit card with a ₹5,000 deposit. Over a period of time, by making timely payments on his bills, he will successfully be able to build a good credit score. After building his good credit score, he can apply for an unsecured credit card.
Case 2: Working Professional
Suppose a working professional, Mike, has a credit score of 750 points. He knows how to maintain a good credit score and has a monthly income of ₹ 90,000. Given his creditworthiness, he plans to apply for an unsecured credit card with a limit of ₹ 1.5 lakh. Additionally, he will be eligible to receive cashback rewards.
| Situation | Recommended Card Type |
| No credit history | Secured Credit Card |
| Repairing damaged credit | Secured Credit Card |
| Good credit score and income | Unsecured Credit Card |
| Seeking high returns, travel rewards | Unsecured Credit Card |
Bottomline
The conclusion can be drawn that secured and unsecured credit cards are both an essential part of personal finance. If you are new to credit or trying to repair past credit mistakes, a secured card is a better place to start. On the other hand, a highly qualified individual with an excellent credit history may opt for an unsecured card as it is more rewarding and convenient. Consider your goals and spending habits before making a decision, and ensure you use credit responsibly.
Written by: Tanya Kumari