Secured vs Unsecured Credit Cards
Trade or commerce is the transfer of ownership of goods and services from one individual to another. It was first done through barter, and then money was introduced and became the most widely accepted medium of exchange.
In the early 1900s, the concept of using a card to purchase goods and services was introduced. It started in the United States in the sale of fuel in the form of a rectangular sheet of metal embossed with the customer’s name and address.
Diners Club then created a general purpose card that can be used for all kinds of purchases. It is issued by a provider after approval and is accepted at several different merchant establishments. When a transaction has been made, the cardholder signs a receipt to indicate his agreement to pay the issuer.
There are two types of credit cards, secured and unsecured. A secured credit card is one that is secured by a deposit account of the cardholder. He must deposit up to 200% of his desired credit limit, or the issuer might only ask for a lesser amount of deposit.
Despite the deposit, cardholders are expected to make regular payments as the deposited amount cannot be used as monthly payments nor can it be withdrawn while the card is still active or open. After several payments, the initial deposit will eventually be returned. The deposit acts as security for the cardholder’s credit purchases. Secured credit cards have higher Annual Percentage Rates (APRs), service charges, and fees since most secured cardholders are those that are not eligible for unsecured credit cards due to a bad credit standing.
It is the only option for them, and it gives them a chance to build up their reputation again and re-establish their credit score and the creditor’s confidence in them. People who do not have a credit history are also offered secured credit cards at first.
Unsecured credit cards, on the other hand, are those that are issued to individuals with a good credit standing. The potential cardholder’s debt-to-income ratio, his time on his job, number of accounts, and late or missed payments are taken into consideration.
The limit is based on credit reports by credit reporting agencies. People who have high credit scores get higher credit limits and lower interest rates. There are no upfront payments required, and only the annual fee has to be paid.
Summary:
1.A secured credit card is a credit card that requires a deposit account from the cardholder while an unsecured credit card does not require any upfront deposit or payment.
2.Secured credit cards are issued to people with a damaged credit standing and those that do not have any credit records yet while unsecured credit cards are issued to individuals who have a good credit standing.
3.A secured credit card limit is determined by the amount of the deposit that an individual has in his deposit account while an unsecured card limit is determined by how high the cardholder’s credit score is. The higher the score, the higher the limit.