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What is the difference between a secured and unsecured credit card?

Curious about Plastic Money

What is the difference between a secured and unsecured credit card?

In the Indian context, the difference between a secured and unsecured credit card lies in the requirements for obtaining the card and the level of risk involved for the card issuer. Here's an explanation of each:

1. Secured Credit Card: A secured credit card is backed by a security deposit provided by the cardholder. To obtain a secured credit card, you typically need to deposit a certain amount of money as collateral with the credit card issuer. The credit limit of the secured card is often set based on a percentage of the security deposit. The security deposit serves as protection for the card issuer in case the cardholder defaults on payments. Secured credit cards are usually offered to individuals with limited or poor credit history, or those who are looking to build or rebuild their credit.

2. Unsecured Credit Card: An unsecured credit card is not backed by any collateral or security deposit. It is a traditional credit card where the cardholder is extended a line of credit without the need for a deposit. The credit limit on an unsecured credit card is determined by the card issuer based on various factors, including the individual's credit history, income, and creditworthiness. Unsecured credit cards are commonly available to individuals with a good credit score and a demonstrated ability to manage credit responsibly.

Key Differences:
Security Deposit: Secured credit cards require a security deposit, while unsecured credit cards do not.
Credit Limit: The credit limit on a secured credit card is typically determined by the amount of the security deposit, whereas the credit limit on an unsecured credit card is determined by the card issuer based on the individual's creditworthiness.
Credit Risk: Secured credit cards carry lower risk for the card issuer since they are backed by a security deposit. Unsecured credit cards involve higher risk for the card issuer as they do not have any collateral.

Both secured and unsecured credit cards can be used for making purchases, building credit history, and enjoying the convenience of credit. However, it's important to note that responsible use of any credit card is crucial to maintain a good credit score and avoid debt.

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