Most credit cards you’ll find in the market today are unsecured credit cards. You can use the card to build your credit, access travel rewards, or pay off your debt. Here is an outline of what you need to know and the advantages and disadvantages of unsecured cards.
What Are Unsecured Credit Cards and How Do They Work?
When you open a new account, the Visa or MasterCard you get is often an unsecured credit card. They are ideal for people with a good credit score between 661 and 850 points.
So, what is an unsecured credit card? It is a card that does not require collateral or a deposit. The issuer extends a line of credit based on your finances.
The card comes with a limit determining how much you can spend. When you pay the balance, the issuer will renew the credit limit. You also don’t have to pay interest when you repay on time.
Advantages of Unsecured Card
Unsecured credit cards have several advantages, particularly for people with good credit scores. Some of their benefits include:
Does Not Require a Minimum Deposit
One of the advantages of an unsecured credit card is that it does not require a minimum deposit. Unlike secured credit cards, they offer a line of credit based on your financial history.
With unsecured credit cards, you can spend within the limit and pay the balance later. Unsecured cards can be an excellent option for people with a good credit score but no way to raise the deposit.
Improve Your Credit Score
As the professionals at SoFi point out, unsecured cards “can help you build your credit.” While being an ideal option to boost your credit score, they often have lower interest rates, making it easier to fulfill the repayment obligations.
You can pay for emergencies with unsecured credit cards. The issuer will often charge lower fees than secured cards. That makes unsecured cards suitable for urgent expenses such as medical bills or a home renovation.
Numerous Rewards and Benefits
Unsecured credit cards have numerous benefits and rewards such as frequent-flyer miles and cash-backs. The benefits will depend on the issuer’s terms of service. If you use the reward program responsibly, you can save money on purchases and air travel.
Disadvantages of Unsecured Credit Cards
The disadvantage of unsecured credit cards is that they take longer for the issuer to approve. It may be challenging to qualify if you have bad credit or no credit,
You could also overspend and ruin your credit score as unsecured cards may entice you to spend more than you can afford due to higher credit limits.
If you don’t have the means to pay, your card will keep racking up your fees and interest. As the interest increases, you may incur debts you may find challenging to fulfill in the future. Who is best suited for an unsecured credit card? If you have a good credit score and want to budget your expenses and earn back points from purchases. The rewards program and expense-tracking features can also benefit business owners.