Is a Credit Card Secured or Unsecured Debt


Credit cards are one of the most common forms of consumer debt. But there is often confusion around whether credit card debt is secured or unsecured. This article will explain the key differences between secured and unsecured debt, and discuss specifically how credit cards fall into the unsecured debt category.

What is Secured Debt?

Secured debt is a loan that is backed or “secured” by collateral. This means the borrower pledges an asset they own, like a house or car, to the lender. If the borrower stops making payments on the debt, the lender can seize the collateral to recoup their losses.Some examples of secured debt include:

  • Mortgages – backed by real estate property
  • Auto loans – backed by the purchased vehicle
  • Secured credit cards – backed by a cash deposit

With secured loans, the collateral helps reduce the lender’s risk. That’s why secured debt often comes with lower interest rates and more flexible repayment terms compared to unsecured alternatives.

What is Unsecured Debt?

Unsecured debt does not require any collateral to obtain financing. Common types of unsecured debt include:

  • Credit cards
  • Medical bills
  • Personal loans
  • Payday loans
  • Utility bills

If the borrower defaults on unsecured debt payments, the lender cannot take any assets in compensation. However, they can take other actions like reporting late payments to credit bureaus, suing for wage garnishment, or sending accounts to collections agencies.As a result, unsecured debt tends to have higher interest rates and stricter eligibility requirements compared to secured debt products. Lenders need to compensate for the increased risk.

Are Credit Cards Secured or Unsecured Debt?

The vast majority of credit cards are unsecured lines of credit. This means the credit card issuer does not require any collateral when approving your application.Instead, credit card companies rely heavily on your credit score, income, and other factors to determine if you qualify. They assume the risk that you may not pay back the debt.There is one exception – secured credit cards. These require an upfront cash deposit, usually $200-$500, that serves as collateral. But secured cards are specifically designed for people working to build credit or repair damaged scores.Traditional unsecured credit cards are issued to borrowers with good credit (scores of 670 or higher). The lender does not need collateral to mitigate their risk. If you miss payments, the card issuer cannot take your assets – but your credit score will suffer.In summary, standard credit cards fall under the unsecured debt category. The credit line is not backed by any collateral. Missed payments can hurt your credit score but won’t result in the lender seizing your assets.

Pros and Cons of Unsecured Credit Cards

Unsecured credit cards come with unique advantages and disadvantages to consider:Pros

  • No collateral required for approval
  • Ideal for establishing and building credit history
  • Often offer rewards programs and other perks
  • Tend to have higher credit limits than secured cards


  • Stricter eligibility requirements based on credit scores
  • Higher interest rates compared to secured debt
  • Missed payments quickly lower your credit score
  • Unpaid balances can go to collections without collateral

For borrowers with good credit, unsecured cards provide an accessible way to make purchases while earning rewards. Just be sure to make payments on time and keep utilization low. Otherwise, interest charges and credit score impacts can add up quickly.

How to Get Approved for an Unsecured Card

Since traditional credit cards are unsecured, approval depends heavily on your creditworthiness. Here are some tips to boost your chances:

  • Check your credit reports – Make sure there are no errors dragging down your credit scores. Dispute any inaccuracies with the credit bureaus.
  • Pay down balances – Lower credit utilization by paying down card balances before applying for new credit. Try to keep utilization below 30%.
  • Avoid new inquiries – Each application triggers a hard inquiry that can temporarily ding your credit score. Minimize new inquiries in the months leading up to your application.
  • Consider becoming an authorized user – Ask a friend or family member with good credit to add you as an authorized user on their account. Their positive history can help offset limited credit.
  • Improve your credit mix – Lenders like to see a variety of credit types in your history, like installment loans and revolving credit. Diversify your mix if needed.

With a little preparation and diligence, you can position yourself to qualify for an unsecured credit card and all of its advantages. Just remember – treat the card responsibly by paying your balance in full each month.

How Secured Cards Help Build Credit

As mentioned above, secured credit cards require an upfront security deposit that serves as your credit limit. They are designed specifically for people with limited credit histories. Here’s how they can help build your credit:

  • Easier to qualify – Secured cards are available to people with bad credit or no credit history. The deposit reduces lender risk.
  • Reports to credit bureaus – Responsible use is reported to Equifax, Experian, and TransUnion, helping build your credit file.
  • Graduate to unsecured cards – After making on-time payments for several months, many issuers review your account for an unsecured upgrade.
  • Get your deposit back – Once you close the account in good standing, the card issuer returns your security deposit.

So secured cards provide an accessible way for credit newcomers to establish and strengthen their payment history. Just make sure your card issuer reports to all three major credit bureaus.

Closing Thoughts

Understanding the difference between secured debt and unsecured debt helps inform smart borrowing decisions. Traditional credit cards fall into the unsecured category, with approval depending on your creditworthiness rather than collateral.Responsible use of an unsecured card demonstrates you can manage credit and make timely payments. But beware of high interest rates and credit score impacts if you miss payments. For anyone with limited credit history, a secured card can help build your profile and work towards unsecured approval down the road.At Delancey Street, we take a personalized approach to lending and credit education. Reach out if you need guidance picking the right credit card or developing healthy credit habits. Our team is here to help you gain financial confidence.

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