Secured and Unsecured Credit Cards – What is the difference?

Many people are not aware that there is more than one type of credit card available to the citizens of Canada, including those with poor consumer credit ratings. Secured and unsecured credit cards. Unsecured credit cards are the typical, run of the meal variety that are most familiar to us all. However, there is also a secured credit card available. It allows individuals who may have a difficult time getting approval for traditional cards to also reap the rewards that this financial tool can bring. There are a few key factors that differentiate one from the other. Understanding the unique concepts behind both cards is essential to making informed financial choices for one’s future.

Credit ratings are determined by several factors. Considerations include how one pays their bills and whether or not they have ever filed for bankruptcy. Those with the better scores get the best interest rates. As the score goes down, the rates go up. The average unsecured credit card is granted to people with high scores. ‘Unsecured’ basically means that the cardholder is being granted money from their card company to use as their own. The expectation is that it will be repaid with added interest in a timely fashion as based on their prior payment histories. People with poor credit scores are practically out of luck when it comes to getting approved for these. The same goes for individuals who have filed bankruptcy. However, it is specifically for these people that the secured credit card is available in Canada.

The secured credit card works just as any other card would functionally. It looks just like a regular card, and can be used for all of the same purchases. There is no discernable difference between the secured and unsecured varieties when they are seen or used. As a matter of fact, the same companies that issue unsecured cards also offer the secured alternate. The difference between the two is that a person with bad credit, no credit or who has gone bankrupt can get approval for these because they open a savings account with the card company. Actual deposit requirements vary, but whatever amount is put into the account is the cardholders credit card limit in most cases. In other words, they have given their credit card company security that repayment will be made.

You got options - Secured and Unsecured Credit Cards

There are two different credit card options open to Canadian residents. Unsecured cards are a common variety for people with above average credit. However, secured credit cards are an excellent option to those who have had a few financial bumps in the road. The ultimate difference between the two is that an unsecured cardholder is basically borrowing money from their company when they make purchases. Those with a secured card are borrowing against their own savings account balance. Having a well-rounded knowledge of both offer individuals the very best opportunities to make wise and prudent financial decisions.