What Is an Unsecured Credit Card? (2024)

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Unsecured credit cards are the most common type ofcredit card. In fact, most of the time, when people apply for a new credit card, they’re applying for unsecured credit. But what does unsecured credit card mean? Consider some basic information to help you understand what an unsecured credit card is and how it works.

How unsecured credit cards work

“Unsecured” in this case means that the debt is not secured by collateral, such as a deposit that the lender or card issuer can keep if you fail to make payments. This type of debt is typically slightly riskier for lenders to issue because it doesn’t require collateral. So, the terms of an unsecured credit card are based on the borrower’s credit rating, ability to pay, application information, and other factors.

Examples of “secured” debt may be car loans or mortgage loans, which are “secured,” or backed by collateral—a house, a car—that helps ensure that the lender can get some of their money back in the event of nonpayment. Unsecured credit card debt has no such requirement.

Unsecured credit card interest rates

Credit card borrowers promise to repay the money, and theypay interest on the debt(unless they pay their full balance each month by the due date). Credit cardstend to havehigher interest rates than car loans or mortgages, partly because credit card debt is riskier for banks.

Borrowers who have a good credit score are typically less risky for banks to lend to, so these borrowers tend to get offered a lower interest rate, or annual percentage rate (APR). The same credit card may offer different APRs to applicants based on their credit history, among other factors.

What do you need to apply for an unsecured credit card?

An unsecured credit card may require a higher income level andcredit scorethan a secured card. The exact requirements canvary by credit card issuer, but if you get turned down for an unsecured card, you canapply for a secured cardand work on building or rebuilding credit until you qualify for an unsecured card.

While the requirements for approval vary by credit card company, you must be 18 years old toapply for your own credit cardin the United States. And if you’re under 21, you’ll usually need to show the credit card issuer that you have your own source of income. In addition to some financial information, you’ll need to provide personal information as well, like your name, Social Security number, date of birth, and more.

Alternatives to unsecured credit cards

Although unsecured cards are the most common form of credit cards, not everyone can qualify for this type of card. If you have limited credit history or are rebuilding your credit, you might want to consider a secured credit card. A may give you the ability to borrow only a small amount of money, for which you pay a security deposit up front that typically equals your credit limit.