Secured vs. Unsecured Credit Cards: Which is Better for Rebuilding Credit?

If you’ve been trying to rebuild your credit, you already know it’s not always easy. Whether due to missed payments, high balances, or bankruptcy, climbing back to good credit takes time and effort. One of the most effective tools for this journey is a credit card, but not just any credit card will do. You’ve probably heard about secured and unsecured credit cards. Still, you might be wondering which one is better for rebuilding credit. Both have benefits and drawbacks, so let’s break down what they are, how they work, and which one might be right for you.

What is a Secured Credit Card?

A secured credit card is specifically designed to help people build or rebuild their credit. “secured” means you must put down a cash deposit as collateral. This deposit usually becomes your credit limit. For example, if you put down $300, your credit limit is typically $300. The deposit lowers the risk for the card issuer, which is why these cards are often easier to get if you have a low credit score or no credit history.

The Discover it® Secured Credit Card is one of the most popular secured cards. It differs from most secured cards because it offers cash-back rewards—2% back at gas stations and restaurants and 1% on all other purchases. This means you can earn some rewards while rebuilding your credit. Another great option is the Capital One Platinum Secured Credit Card. Depending on your creditworthiness, this card might require a lower deposit, which can be helpful if you don’t have a lot of cash to put down upfront. Both cards report to all three major credit bureaus—Equifax, Experian, and TransUnion—so your positive activity will help improve your credit score.

Secured credit cards are great for those who need to prove they can manage credit responsibly. The deposit is a safeguard, so you’re more likely to be careful with your spending. Plus, these cards are designed for people with damaged credit, making them a good starting point for rebuilding.

How Secured Credit Cards Help Your Credit Score

The main advantage of secured credit cards is their ability to help you build credit. Your secured card activity is reported to the credit bureaus like a regular credit card. This means that if you consistently make on-time payments and keep your balance low, your credit score will start to rise.

Payment history is the most significant factor in your credit score, making up 35% of your FICO score. So, paying your secured credit card bill on time every month is one of the quickest ways to improve your score. Another important factor is your credit utilization ratio—the amount of credit you use compared to your credit limit. Keeping this ratio below 30% is ideal for boosting your score. For instance, if your secured card has a $500 limit, you’ll want to keep your balance below $150 to stay within that range.

However, one thing to remember with secured cards is that they often come with higher interest rates and fees. If you carry a balance from month to month, those high rates could cost you a lot and offset any benefits you’re getting from improving your credit. That’s why paying off your balance in full each month is important to avoid interest charges.

What is an Unsecured Credit Card?

Unsecured credit cards, on the other hand, don’t require a cash deposit. These are the standard credit cards most people are familiar with. Getting approved for an unsecured card usually depends on your credit score and history. If your score isn’t great but not terrible, some unsecured cards can help you rebuild your credit—if you use them wisely.

For example, the Capital One QuicksilverOne Cash Rewards Credit Card offers 1.5% cash back on every purchase, which is a nice perk as you work to improve your credit. Another option is the Petal® 1 “No Annual Fee” Visa® Credit Card, which takes a different approach by looking at more than just your credit score. It uses cash flow technology to assess your application, making it a good choice if you don’t have a lengthy credit history.

While you don’t have to put down a deposit for unsecured cards, they often come with higher interest rates and lower credit limits if you have a low credit score. They can also come with annual fees or other charges, so reading the fine print is essential. Like secured cards, these unsecured options also report to the major credit bureaus, making them a valuable tool for rebuilding credit if you manage them well.

How Unsecured Credit Cards Impact Your Credit Score

Unsecured credit cards can be as effective for rebuilding credit as secured cards, provided you use them correctly. Like secured cards, your payment history and credit utilization ratio significantly determine your credit score. Making on-time payments and keeping your balances low is critical to improving your score.

One potential benefit of unsecured cards is that they sometimes offer higher credit limits than secured cards. A higher credit limit can lower your credit utilization ratio, which benefits your score. However, without the security of a deposit, it can be easy to spend more than you should. If you max out your card or carry a high balance, it can hurt your credit score.

If you qualify for an unsecured card with a reasonable interest rate and no annual fees and have the discipline to keep your spending in check, it could be an excellent option for rebuilding your credit. They offer more flexibility and often come with rewards that secured cards don’t.

Secured vs. Unsecured: Which is Better for Rebuilding Credit?

So, should you choose a secured or unsecured credit card to rebuild your credit? The answer depends on your current financial situation, credit score, and confidence in responsibly managing credit.

Suppose you’re starting with a low credit score or coming out of a challenging financial situation. In that case, a secured credit card might be the best choice. The deposit acts as a safety net for both you and the lender, and the requirements for approval are generally more lenient. Over time, many secured cards allow you to upgrade to an unsecured version, making them a stepping stone to better credit options.

The Discover it® Secured Credit Card and Capital One Platinum Secured Credit Card are solid choices because they offer the chance to earn rewards and possibly upgrade later. These cards also tend to have lower fees, which is great for those focused on getting back on track without spending much on fees.

On the other hand, if you have fair credit and are comfortable managing credit, an unsecured credit card might be the better option. Cards like the Capital One QuicksilverOne Cash Rewards Credit Card or Petal® 1 Visa® Credit Card offer the flexibility of no deposit, potential rewards, and other perks. But they require more discipline, as no deposit keeps you from overspending.

If you’re considering an unsecured card, take the time to compare different options to find one that offers favorable terms—like low interest rates, no annual fees, and rewards. Websites like NerdWallet and Credit Karma can help you compare cards based on your credit profile.

How to Decide Which Card is Right for You

Choosing between a secured and unsecured credit card for rebuilding credit comes down to understanding your financial habits and where you’re starting from. Suppose your credit is low or you’ve had a rough financial history. In that case, secured cards provide a safer way to begin rebuilding. The deposit requirement gives you a bit of a buffer, and the structured payments help you develop good credit habits.

If you’re looking at unsecured cards, ask yourself if you’re ready to manage a line of credit without the safety net of a deposit. Think about your goals, the costs associated with each card, and whether you’re disciplined enough to avoid carrying a balance. Suppose you’ve got a solid plan and are confident in your ability to pay off the card each month. In that case, an unsecured card might offer more benefits and flexibility.

The best card for rebuilding credit is one that fits your needs, doesn’t break the bank with fees, and helps you develop healthy credit habits.

Building Better Credit Habits

No matter which type of card you choose, building good habits is the key to rebuilding your credit. Pay all your bills on time, keep your credit utilization low, and regularly monitor your credit for mistakes or signs of identity theft.

Apps like Mint and YNAB (You Need A Budget) can help you stay on top of your spending and payment due dates. You can also use free tools from Credit Karma or Credit Sesame to monitor your credit report and track your progress.

Rebuilding your credit isn’t an overnight process. Still, with the right tools and discipline, you can take control of your financial future. Whether you choose a secured or unsecured credit card, focus on responsible use, monitor your spending, and watch your credit score grow.