Unsecured Credit Cards

Unsecured credit cards are the next step after secured credit cards. Where many people with bad credit turn to secured credit cards to re-establish good credit history, unsecured credit cards are the next step to bigger credit lines, better rewards, and generally better credit card terms. We’ll detail all the ins and outs of unsecured credit cards so you can make an informed decision about borrowing money.

What does unsecured mean?
In banking and finance, any unsecured debt is one in which the bank’s loan is not backed by any other capital. Thus, in the case of credit cards, an unsecured credit card is simply a credit card that is not collateralized. You don’t have to put up a down payment, nor do you need to send the lender money to be able to use a credit card. Additionally, a failure to pay your credit card because of a job loss or other event will not result in the loss of property. On the other hand, secured debt, such as a mortgage loan or car note, will necessarily result in the loss of property, as the loan is secured by the ownership of the home or vehicle.

Unsecured credit cards typically have several features:
1. Higher credit lines – Credit lines on secured cards are typically lower than average, often no more than $1,000. Obviously, with such a low credit line, the amount of purchases you can make each month before paying the bill off is minimized, thus reducing the utility of the card. Higher credit lines will enable you to borrow more money if you need to, and charge up more purchases before reaching your limit. Whereas a secured card’s credit card limit of $500 could be covered in full just by paying your monthly utility bill, an unsecured credit card may have limits of $10,000 or more.

2. Rewards – Unsecured credit cards are full of rewards, often a small cash back payment or points for each dollar you spend. Most unsecured credit cards offer a cash back deal in the form of 1% against all charges each year. Thus, if you were to use your card to pay for $10,000 of expenses over the course of a year, you would accumulate $100 in cash back funds for your purchases—an excellent deal!

3. Better credit reporting – First, credit card companies often agree to provide free credit scores to their users. But secondly, and more importantly, having an unsecured credit card is much better than having a secured card for your credit score. An unsecured credit card with a higher credit line will show lower utilization each month, and thus improve your score. Let’s say you charge only your gasoline costs each month, which equal $200. If you have a secured credit card with a $250 limit, then your utilization is a whopping 80% of your credit line. That’s a bad sign. On the other hand, if you have a $2,000 unsecured credit card, then your utilization is only 10%, a figure well below the alarm bell level of 30% utilization.

Applying for unsecured credit cards
Borrowers can successfully apply for an unsecured credit card if they have no, bad, or limited credit history. In general, a company will want to see that you have a reasonable level of income which can cover your monthly payments.

In general, those looking to reach out into the land of unsecured credit should start first with lenders who specialize in beginner credit cards. Capital One, Household Bank, and your local bank would be great places to start looking for an unsecured credit card. Each will be likely to give you a credit card—unsecured—which can boost your credit standing, your credit score, and your ability to use convenient services like an everyday credit card.