Secured vs Unsecured Credit Cards: Which One Should You Choose?

Credit cards are powerful financial tools, but choosing the right type can be overwhelming, especially when you're new to credit or looking to rebuild it. This is where secured credit cards come into play—they’re specifically designed to help individuals establish or improve their credit history. On the other hand, unsecured credit cards are more common and cater to individuals with good credit scores.

Let’s explore what makes secured credit and unsecured credit cards unique and who they are ideal for.

Secured credit cards require collateral, often in the form of a Fixed Deposit (FD). These cards are backed by a deposit, making them an excellent option for individuals with no or low credit scores to build their credit history.

• Ideal for: Individuals with no or low credit history.

• Credit Limit: Generally linked to the FD amount, ranging from 70-100% of the deposit.

• Interest Earned: You earn interest on the FD while using the card.

Wondering what’s unsecured credit card and how it differs from secured cards? Unsecured credit cards don’t require collateral and are designed for individuals with good credit scores, offering higher credit limits and greater flexibility.

• Ideal for: Individuals with a good credit score (typically 750 or above).

• Credit Limit: Determined by factors like credit score, income, and other financial metrics.

Check also: Key Differences Between Business vs Corporate Credit Cards

• They provide an easier approval process for individuals with limited or poor credit history.

• They help establish and improve credit scores through responsible usage.

• They offer the possibility of increased credit limits over time.

• They don’t require a security deposit, making them more accessible to those with an established credit history.

• If you have a higher credit score, you can access higher credit limits, offering greater spending power.

• They often come with additional perks like cashback, rewards points, travel benefits, and exclusive offers tailored to your spending habits.

The right choice depends on your financial needs and credit history:

• Secured Credit Cards: Best for individuals with low or no credit scores. They offer a chance to build credit and transition to other financial products.

• Unsecured Credit Cards: Ideal for those with good credit scores, as they provide higher credit limits and don’t require deposits.

1. Research and choose a suitable credit card issuer.

2. Download the issuer’s app or visit their website.

3. Provide required details, including PAN and Aadhaar.

4. Open an FD as collateral through the app.

5. Your secured credit card is activated virtually, with a physical card arriving in 5-7 business days.

Check also: What is Lifetime Free Credit Card and How to Apply?

1. Compare cards and check eligibility based on your credit score and income.

2. Visit the issuer’s website/app and fill out the application form with required details.

3. Submit necessary documents and wait for verification.

4. Upon approval, start using the virtual card while the physical card is dispatched.

When deciding between a secured credit card vs unsecured credit card, consider your financial goals, credit score, and need for credit-building tools or flexible features. For beginners or those looking to rebuild their credit, secured cards are an excellent starting point. For individuals with an established credit profile, unsecured cards offer greater flexibility and benefits.

Unsecured credit cards in India operate as revolving credit lines that do not require any collateral or security deposit. This is the most common type of credit card that relies on the issuer’s assessment of your creditworthiness.

No, obtaining an unsecured credit card in India without any credit history is usually not possible. Issuers rely heavily on CIBIL scores or credit scores from other credit information companies to make sure you have experience with credit and can manage your credit limit. 

If you don't have a credit history, you can start with secured cards. However, you may be able to get an unsecured credit card without a history when you join a well-known MNC or a public limited company via its corporate banking relationship with a credit card issuer. 

A CIBIL score of 700 or above is typically required for unsecured credit card approval in India, with 750+ preferred for better limits and premium options. Scores of 750+ yield high approval chances from top banks and often come with higher limits. Mid-tier scores of 700-749 offer moderate chances of approval, while 650-699 may work for entry-level cards, but with restrictions such as lower limits or higher fees.

For cardholders, both can be equally risky if used without budgeting or planning. A secured card can pose the risk of losing one’s collateral, while an unsecured card has a high potential for accumulating debt. 

Unsecured credit cards carry a number of charges related to:

• Interest rate on the unpaid balance due

• ATM cash withdrawal 

• Joining fee and annual maintenance charges 

• Late payment charge 

• Overlimit charge 

• Foreign transaction fee 

In some cases, there is also a rewards redemption fee, which is applied when you utilise the points you have earned. It is best to check all the charges in the Most Important Terms and Conditions (MITC) document before you sign up. 

Yes, unsecured credit cards are effective for building credit in India when used responsibly, as payment history and credit utilisation ratio contribute around 60% to your credit score.

Here are a few tips to help:

• Pay the complete bill on time to avoid interest 

• Use up to 30% of your credit limit to ensure a low utilisation 

• Avoid using your credit card for cash advances or loans

Yes, you can upgrade from a secured credit card to an unsecured version by demonstrating responsible usage. You can also apply separately for unsecured cards once your credit score allows you to do so, as per the eligibility criteria of various issuers. However, not all issuers offer direct upgrades, so make sure to ask before applying.

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