An unsecured credit card lets you borrow money without putting down a cash deposit
An unsecured credit card is a card where the credit limit is not backed by money you deposit with the bank. When you use it, you're borrowing from the card issuer based on their assessment of your creditworthiness — your income, payment history, and existing debt. The bank takes the risk that you'll pay them back. Most credit cards people carry are unsecured.
This is different from a secured card, where you deposit cash (usually $200 to $2,500) and the bank sets your credit limit equal to that deposit. With an unsecured card, there is no deposit sitting in an account. You straightforward get a credit limit, use the card, and pay the bill each month.
Unsecured cards typically come with higher interest rates than secured cards, especially if you're rebuilding credit or have limited credit history. The issuer charges more because they have no collateral — if you don't pay, they can't take your deposit back. They rely on your willingness to pay and their ability to pursue collection if you don't.
Key Takeaways
- Unsecured cards require no cash deposit and are approved based on your credit history and income alone.
- Interest rates on unsecured cards are usually higher than secured cards because the bank has no deposit to fall back on.
- You can get an unsecured card if you have fair credit or better, though some issuers offer unsecured cards to people with limited or poor credit history.
- Unsecured cards report to the three credit bureaus, so on-time payments help rebuild your credit score.
- If you stop paying an unsecured card, the issuer can report the debt to collections and pursue legal action, but they cannot seize a deposit.
Who can get an unsecured credit card
Most people with fair credit or better can get an unsecured card from mainstream issuers like Chase, Capital One, or Discover. These banks typically look for a credit score of 600 or higher, though the exact threshold varies by issuer and by the specific card product.
If your credit score is lower or you have no credit history, you may still find unsecured cards designed for people rebuilding credit. Capital One, Discover, and some smaller issuers offer unsecured cards to people with scores in the 500s or even lower. These cards usually come with higher interest rates and lower credit limits, but they are still unsecured — you don't deposit money.
The bank will also consider your income and existing debt. If you have high balances on other cards or recent missed payments, you may be denied even if your score is in the acceptable range. Each issuer has its own rules about what combination of factors they will accept.
How interest rates and fees work on unsecured cards
Unsecured cards for people with fair or good credit typically carry interest rates (called APR, or annual percentage rate) between 15% and 25%. Cards for people rebuilding credit often range from 20% to 36%. The exact rate depends on your credit score, income, and the issuer's pricing.
Most unsecured cards also charge an annual fee, though some do not. Annual fees on unsecured cards for fair credit typically range from $0 to $95. Cards marketed to people with poor credit or limited history may charge $39 to $99 per year. A few issuers waive the annual fee in the first year or waive it if you meet certain spending targets.
Unlike secured cards, unsecured cards do not return a deposit at the end — there is no deposit to return. Your only way to lower your costs is to pay off your balance in full each month (so you pay no interest) or to request a lower interest rate after you've made on-time payments for several months.
How unsecured cards affect your credit score
Unsecured cards report to all three credit bureaus — Equifax, Experian, and TransUnion — just like secured cards do. Every month, the issuer reports your payment status, your balance, and your credit limit. This information shapes your credit score.
On-time payments are the single largest factor in your score. If you pay your unsecured card bill on time every month, your score will improve over time. Missed payments, even by a few days, will hurt your score and may trigger late fees and a higher interest rate.
Your credit utilization — the percentage of your credit limit that you're using — also matters. If your limit is $500 and you carry a $400 balance, your utilization is 80%, which can lower your score. Keeping your balance below 30% of your limit helps your score more. This is true whether the card is secured or unsecured.
What happens if you don't pay an unsecured card
If you miss a payment on an unsecured card, the consequences are serious. After 30 days, the issuer will report the late payment to the credit bureaus, and your score will drop. They will also charge you a late fee, usually $25 to $40 for the first late payment and up to $40 for subsequent ones.
If you continue not to pay, the issuer will eventually close your account and send the debt to a collection agency. The collection agency can then call you, send letters, and attempt to recover the money. If the debt is large enough, they may file a lawsuit against you. A judgment against you can lead to wage garnishment or a bank levy, depending on your state's laws.
Because there is no deposit, the issuer cannot straightforward take money back from you. They must pursue collection through the normal legal channels. However, the damage to your credit score and the legal consequences are real and can last for years. A collection account stays on your credit report for seven years from the date of first delinquency.
Unsecured cards versus secured cards: when to choose each
Choose an unsecured card if you have fair credit or better and can may have access to for one. Unsecured cards usually have lower annual fees, and you don't have to tie up cash in a deposit. If you can pay your balance in full each month, the higher interest rate won't matter because you'll pay no interest.
Choose a secured card if your credit score is below 600, if you've been denied for unsecured cards, or if you want to minimize your interest rate while rebuilding. Secured cards are easier to get approved for, and some issuers offer lower interest rates on secured cards than on unsecured cards for people with poor credit. The trade-off is that your money is tied up in a deposit.
Many people start with a secured card, make on-time payments for 6 to 12 months, and then graduate to an unsecured card. Once your score improves, you can close the secured card and get your deposit back. The secured card's payment history stays on your credit report and continues to help your score.
How to use an unsecured card responsibly
Pay your bill on time, every month. Set up automatic payments for at least the minimum due, or better yet, for the full balance. Missing even one payment will damage your credit and trigger fees.
Keep your balance low relative to your credit limit. Aim to use no more than 10% to 30% of your available credit. If your limit is $1,000, try not to carry a balance higher than $300. This shows lenders you can manage credit responsibly.
Do not close the card once you've paid it off. An open account with a zero balance and a long payment history helps your credit score. Closing it removes that positive history from your active accounts and can lower your score.
Review your statement each month to check for fraud or errors. If you see a charge you didn't make, contact the issuer right away. Federal law limits your liability for fraudulent charges to $50, and most issuers waive that fee entirely if you report the fraud promptly.
Frequently Asked Questions
Can I convert a secured card to an unsecured card?
Some issuers will convert your secured card to an unsecured card after you've made on-time payments for 6 to 18 months and your credit score has improved. Contact your issuer to ask whether they offer this option. If they do, they will return your deposit once the conversion is complete.
What's the difference between unsecured and unsecured credit cards?
There is no difference — "unsecured" and "unsecured credit card" mean the same thing. Both refer to a card where you don't deposit cash and the credit limit is based on your creditworthiness. You may also hear the term "traditional credit card," which means the same thing.
Do unsecured cards have a grace period before interest kicks in?
Most unsecured cards offer a grace period of 21 to 25 days from the end of your billing cycle. If you pay your full balance by the due date, you pay no interest on new purchases. If you carry a balance, interest starts accruing when ready on that balance. Cash advances and balance transfers usually have no grace period.
Can I get an unsecured card if I have no credit history?
Yes, though your options are limited. Some issuers, including Discover and Capital One, offer unsecured cards to people with no credit history or very limited credit. These cards typically have lower credit limits and higher interest rates. You may also need a co-signer or a larger income to may have access to.
What happens to my unsecured card if I file for bankruptcy?
If you file for bankruptcy, your unsecured credit card debt may be discharged (forgiven) depending on the type of bankruptcy and your circumstances. However, bankruptcy will severely damage your credit score and stay on your report for 7 to 10 years. Speak with a bankruptcy attorney about your specific situation before filing.