Unsecured Credit Cards: What You Need To Know Before You Apply

Unsecured Credit Cards: What You Need To Know Before You Apply

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Consumers with bad credit are often left with secured credit cards as their best option for rebuilding credit. Some subprime users, those with FICO scores below 600, seek out unsecured credit cards to avoid having to put down a security deposit. As a rule, it's best for consumers to steer clear of unsecured cards altogether because they are riddled with problems. Secured credit cards are the better alternative. They often have significantly fewer fees, meaning you end up paying less for a secured card than you would for an unsecured one.

The Problem With Unsecured Credit Cards

The biggest issue with unsecured credit cards is their excessive fees. For example, many of the offers in the chart below charge their users a one-time set-up fee. These can range from $30 to $100. This is not typically seen on high-end secured credit cards. Furthermore, the annual fees on these cards are much higher than those on ordinary credit cards for bad credit. Therefore, even though you’re not explicitly putting down a deposit, you’re still paying out of pocket. When you consider all the fees you'd pay for a unsecured card versus a secured one, we find that on average you must pay more for the unsecured. You should also consider the fact that, at the end of the day, the security deposit is still yours. You can close your account and get your money back at any time, provided your account remains in good standing. When you pay high fees for unsecured credit cards, that money is gone forever.

Popular Unsecured Credit Cards For Bad Credit

Card

Annual Fee
Set-up Fee
Annual Maintenance Fee
APR
Milestone® Gold Mastercard®$35-$99, depending on creditworthiness*$0 - $35None24.9%
Indigo® Platinum Mastercard®$0 - $99NoneNone24.90%
Credit One Bank® Unsecured Platinum Visa®$0 - $99NoneNone15.90%-24.40% Variable (V)
First Access VISA® Credit CardSee Terms$89$75See Terms
Surge Mastercard® Credit CardSee website for Details*None$12025.90% – 29.99% (Variable)
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After reviewing dozens of cardmember agreements for unsecured credit cards for bad credit, we weren’t able to find a single one that provided a clear answer on what its annual fee will be. This is another red flag. Unlike regular secured credit cards, the unsecured variants typically express the annual fee as a range and only present you with a fee after you fill out a ‘pre-screen’ offer, during which they do a soft pull on your account. This lack of transparency is problematic from a financial product.

Alternatives to Unsecured Credit Cards

We recommend consumers who are seeking unsecured credit cards give these few secured cards a look. Both of these offers have fairly relaxed security deposit policies, and will not burn a hole in your pocket.

Discover it® Secured Credit Card: Deposits of at least $200

With the Discover it® Secured Credit Card, there’s a chance your security deposit will be returned to you after eight months of cardmembership. At that point, Discover will review your account and how you’ve been managing your credit card. Assuming everything is in good standing, you can get your security deposit back, potentially turning this an unsecured credit card.

The Discover it® Secured Credit Card is one of the top secured credit cards cards because it has no annual fee and a rewards program. Cardholders earn 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter, 1% unlimited cash back on all other purchases - automatically. On top of that, Discover matches all the cash back earned at the end of the first year for new cardmembers.

Highlights

  • Discover reviews account after 8 months, possibly refunding the security deposit
  • Read Full Review

Secured Mastercard® from Capital One: Deposit Between $49 and $200

The Secured Mastercard® from Capital One has one of the lowest security deposits of any bad credit credit card. Because of this, the Secured Mastercard® from Capital One is unique and better than most secured credit cards in granting access to credit for subprime users. Typically, when you put up a security deposit the corresponding credit limit will be equal to your deposit. The Secured Mastercard® from Capital One allows for greater flexibility.

Like the Discover it® Secured Credit Card, the Secured Mastercard® from Capital One has $0 annual fee. It’s possible that within just one year you will already be ahead financially by using this card instead of some of the unsecured offers we listed above. This is especially true if you compare this against one of the cards that charges their users a set-up or monthly maintenance fee.

Highlights

  • $0 annual fee
  • Security deposit starts as low as $49 (be aware that you’ll need access to an authorized bank account to make the deposit)
  • None foreign transaction fees
  • Read Full Review

What To Know About Shopping Around For Credit Cards With Bad Credit

When you have bad credit, the number of credit card options you’re presented with isn’t necessarily limited. However, the quality of those cards is. Subprime consumers are often targeted by predatory lenders looking to capitalize on their weakened financial state. That’s why it’s important for individuals with bad credit to be more vigilant and scrutinize offers they receive with greater care than most other consumers.

You should immediately disregard any cards that charge excessive fee. That includes monthly maintenance, set-up fees as well as annual fees above $50. Since credit cards for bad credit typically come with little-to-no-rewards it doesn’t make any sense to pay for them. Furthermore, there are many offers available to individuals with credit scores below 600 that don’t charge any of those fees. Even if you declared bankruptcy in the past, there are no-fee cards that will give you a second chance at building up your credit score.

Know The Difference Between No Credit and Bad Credit

Don't confuse having no credit history with having bad credit. For example, if you are a student who never opened any credit account you don't necessarily have bad credit. This is an important distinction to understand. The offers available to people with no credit are often much better than those for people with bad credit. Therefore, you should adjust your search for a card accordingly.

For students with no credit history, there exists a separate category of cards, commonly referred to as ‘student credit cards’. These offers are typically unsecured and don’t charge any annual fees.

Joe Resendiz

Joe Resendiz is a former investment banking analyst for Goldman Sachs, where he covered public sector and infrastructure financing. During his time on Wall Street, Joe worked closely with the debt capital markets team, which allowed him to gain unique insights into the credit market. Joe is currently a research analyst who covers credit cards and the payments industry. He earned a bachelor’s degree from the University of Texas at Austin, where he majored in finance.

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How We Calculate Rewards: ValuePenguin calculates the value of rewards by estimating the dollar value of any points, miles or bonuses earned using the card less any associated annual fees. These estimates here are ValuePenguin's alone, not those of the card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer.

Example of how we calculate the rewards rates: When redeemed for travel through Ultimate Rewards, Chase Sapphire Preferred points are worth $0.0125 each. The card awards 2 points on travel and dining and 1 point on everything else. Therefore, we say the card has a 2.5% rewards rate on dining and travel (2 x $0.0125) and a 1.25% rewards rate on everything else (1 x $0.0125).

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