An unsecured credit card is a credit card that does not require a guarantee deposit to be approved or to increase your credit limit. When people refer to a credit card, what is meant is an unsecured credit card.
At present, the most unsecured credit cards are used. Someone who submits an unsecured credit card does not need a guarantee such as a mortgage or car loan. Your property is also safe, because unsecured loans do not require property guarantees to be confiscated when you experience default. In other words, credit card issuers do not have a deposit that they can take if you do not pay your credit card balance.
Instead, the unsecured credit card issuer will do further billing, report delinquent balances to credit bureaus, use debt collection services, sue you in court, or ask permission from the court to deduct your wages. Anyone can have a card without collateral if you have a good credit history, have financial strength and clear potential income.
The Reasons Why People Choose Unsecured Credit Cards
Apart from potential legal risks, most people still choose credit cards without collateral because they don’t have to pay money upfront – get interest. In addition, unsecured credit cards also have lower interest rates and offer many gift programs – a feature that is rarely owned by secure credit cards.
Requirements to get Unsecured Credit Card
Unsecured card issuers pay close attention to credit history. Someone who has a bad credit history, has never applied for a loan, or has experienced a bankruptcy, it will be more difficult to get a credit card without collateral. Why? Because creditors make the credit history a risk that you are not in a good position to be able to repay what you borrow.
In such conditions, credit card issuers usually advise you to get a secured credit card. The goal is to return credit to the track and qualify for a better credit card. Once you are no longer considered risky, you will find it easier to get a credit card without collateral. The opportunity to get an unsecured credit card will be greater if you use a secure credit card wisely – not spending too much money – for at least six months.
If you can use credit cards wisely for a minimum of six months, you can convert to an unsecured credit card. If approved, the credit card issuer will return your security deposit. However, the process of converting from collateral credit cards to unsecured credit cards takes a long time – between 12 to 18 months.
Another way is to invite relatives or friends to get an unsecured credit card. This way you can be free to pay bail. It can also increase your credit score so you can be approved to get an unsecured credit card.
How Unsecured Credit Cards Work
Because it is called an unsecured credit card it does not require collateral, so the debt requirements are based on the borrower’s credit rating, ability to pay, application information, and other factors. For credit card issuers, unsecured credit cards have a greater risk, for example a default or bad credit. Unlike car loans or mortgage loans, which require borrowers to pledge their property – as collateral for default, unsecured credit card debt has no collateral.
Unsecured Credit Card Interest Rates
Credit card borrowers promise to return the borrowed money plus paying interest. Lenders tend to apply higher interest rates to credit cards than other loans such as cars or mortgages. High interest rates have to be applied because credit card debt has a greater risk for the bank.
This is also why unsecured credit card APRs are risk-based and can vary among borrowers. Borrowers who have a better credit history have lower risk levels to lend, so borrowers tend to get lower APRs. Likewise the payment terms are not much different.
The Best Unsecured Credit Cards
U.S. News, as quoted from usnews.com, evaluates top credit cards available to consumers with average, reasonable, or limited credit that does not require a security deposit. Evaluation mainly takes into account the recommended credit ratings for approvals, annual fees, availability of prizes, APR and the benefits of card holders are additional factors that are analyzed to identify cards without collateral with the best overall value.
• Discover it® Student Cash Back: Best unsecured card with cash back for students.
• Capital One® Platinum Credit Card: Best unsecured card with no annual fee.
• Capital One® QuicksilverOne® Cash Rewards Credit Card: Best unsecured card with flat-rate rewards.
• Credit One Bank® Platinum Visa® with Cash Back Rewards: Best unsecured card with flat-rate rewards and no annual fee.
• Journey® Student Rewards from Capital One®: Best unsecured card for students building credit.
• Capital One® Spark® Classic for Business: Best unsecured business card for average, fair or limited credit.