Credit cards have become an essential financial tool in today’s economy, offering convenience, purchasing power, and financial flexibility. However, not all credit cards are created equal. Two primary categories—Secured credit cards and unsecured credit cards—serve different purposes and cater to diverse financial situations. This comprehensive guide explores both types, helping you understand which option might better suit your financial needs. If you decide to apply for an unsecured credit card, you can also do a free CIBIL score check on Wishfin before you apply in order to check if you fulfill the eligibility criteria set down by the credit card issuer.
Additional read: Want to know which are some of the best secured credit cards for 2025, then click here.
Understanding Secured Credit Cards
Secured credit cards are financial products backed by a security deposit that the cardholder provides upfront. This deposit typically determines the credit limit and serves as collateral, reducing the risk for the issuing bank.
Key Features of Secured Credit Cards
- Security Deposit: Requires an upfront deposit, usually ranging from Rs. 5,000 to Rs. 2,00,000, which serves as collateral.
- Credit Limit: Typically equal to or slightly less than the security deposit amount.
- Target Audience: Designed for individuals with no credit history or poor credit scores who want to build or rebuild their credit profile.
- Approval Process: Higher approval rates since the deposit mitigates the bank’s risk.
- The Chance to transition: Many secured cards provide a path to convert to unsecured cards if you use them with responsibility and consistency.
Benefits of Secured Credit Cards
- Easier Approval: Even with poor or no credit history, approval chances are higher.
- Credit Building Opportunity: Regular use and timely payments help establish or improve credit scores.
- Similar Functionality: In spite of being secured, these cards provide the same payment potential as unsecured cards.
- Deposit Security: The security deposit is refundable when the account is closed in good standing or upgraded to an unsecured card.
- Lower Fees: Some secured cards have lower annual fees compared to unsecured cards designed for poor credit.
Understanding Unsecured Credit Cards
Unsecured credit cards don’t require any collateral and extend credit based on the cardholder’s creditworthiness, income, and financial history.
Key Features of Unsecured Credit Cards
- No Security Deposit: Credit is extended based on trust and financial assessment.
- Variable Credit Limits: Limits are determined by income, credit score, and financial history, ranging from Rs. 20,000 to several lakhs.
- Target Audience: Individuals with established credit histories and good credit scores.
- Approval Process: More stringent, requiring proof of income and good credit standing.
- Diverse Options: Available in various tiers, from basic cards to premium offerings with extensive benefits.
Benefits of Unsecured Credit Cards
- No Tied-up Capital: No security deposit is required, freeing up your funds.
- Higher Credit Limits: Generally provide greater purchasing power than secured cards.
- Reward Programs: Often come with travel rewards, cashback, or points systems.
- Better Benefits: May include insurance coverage, concierge services, and purchase protection.
- Status Symbol: Premium cards may confer prestige and exclusive perks.
Comparison at a Glance
| Feature | Secured Credit Cards | Unsecured Credit Cards |
|---|---|---|
|
Security Deposit |
Required (Rs. 5,000 - Rs. 2,00,000) |
Not required |
|
Credit Limit |
Usually equal to deposit amount |
Based on creditworthiness (Rs. 20,000 - Rs. 10,00,000+) |
|
Eligibility Criteria |
Minimal - suitable for no/poor credit |
Requires good credit score (typically 700+) |
|
Interest Rates (APR) |
Higher (24% - 36% p.a.) |
Variable (12% - 30% p.a. based on profile) |
|
Annual Fees |
Rs. 500 - Rs. 2,000 |
Rs. 0 - Rs. 10,000+ (Varies widely) |
|
Approval Likelihood |
High (80-90% for eligible applicants) |
Moderate to low (depends on credit profile) |
|
Reward Programs |
Limited or none |
Often substantial (cashback, points, miles) |
|
Credit Building Potential |
Excellent for beginners |
Maintains and enhances existing credit |
|
Upgrade Potential |
Can graduate to unsecured cards |
Can upgrade to premium card variants |
|
Processing Time |
Typically 7-14 days |
Usually 3-7 days |
|
Additional Benefits |
Basic (limited insurance, offers) |
Extensive (travel insurance, lounge access, concierge) |
Eligibility Criteria in Detail
Secured Credit Cards
- Age: Typically 21-60 years
- Income Requirements: Minimum annual income of Rs. 1,00,000 - Rs. 2,00,000
- Documentation: ID proof, address proof, income proof, PAN card, and funds for security deposit.
- Credit Score: Minimal requirements, often accepting scores as low as 550 or no credit history.
- Employment Status: Need to show some form of regular income.
Unsecured Credit Cards
- Age: Typically 21-65 years
- Income Requirements: Varies by card tier, ranging from Rs. 2,50,000 to Rs. 15,00,000+ annual income
- Documentation: ITR, address proof, identity proof, income proof, and PAN card
- Credit Score: Typically requires 700+ for standard cards, 750+ for premium options
- Employment Status: Stable employment history (usually 1-2 years minimum)
Typical Usage Scenarios
When to Choose a Secured Credit Card
- Credit Building: Ideal for first-time credit users or students wanting to establish credit history.
- Credit Repair: Perfect for individuals recovering from bankruptcy or serious credit issues.
- Financial Discipline Training: Good for those wanting to learn responsible credit management with limited risk.
- Limited Income Situations: Suitable when income doesn’t qualify for unsecured options but you still need a credit card.
- Recent Immigration: Helpful for newcomers to India without established local credit.
When to Choose an Unsecured Credit Card?
- Established Credit: Best for those with good credit scores looking for better benefits.
- Regular Large Purchases: Ideal when needing higher credit limits for significant expenses.
- Travel Needs: Superior for frequent travelers who benefit from travel insurance and rewards.
- Cashback Opportunities: Excellent for those who can maximize reward programs.
- Business Expenses: Unsecured credit cards are most suitable for separating business and personal expenses with higher limits.
Transitioning from Secured to Unsecured
You can start your credit journey with secured credit cards and gradually transition to unsecured options if you pay your dues on time and build a good credit score and credit history.
- Responsible Usage: Maintain low credit utilization (below 30%) and make all payments on time.
- Duration: Use the secured card responsibly for 12-18 months.
- Credit Score Monitoring: Track improvements in your credit score.
- Automatic Graduation: Some banks automatically evaluate your account for an upgrade.
- Application Process: If not automatic, apply for an unsecured card once your credit score improves.
- Deposit Return: Upon successful transition, your security deposit is refunded.
Conclusion
Both secured credit cards and unsecured credit cards serve important purposes in the financial ecosystem. Secured cards help you enter the credit world if you do not have a good credit score. Then, by paying your dues on time, you can build a solid credit history and finally get upgraded to an unsecured credit card. "In contrast, unsecured credit cards acknowledge proven financial reliability by offering increased spending power, more substantial credit limits, and premium rewards tailored to the Indian market."Your choice between the two should be based on your present financial situation, credit history, and financial goals. Remember that responsible use of either type of card is the key to building and maintaining good credit health, which opens doors to better financial opportunities in the future.
FREQUENTLY ASKED QUESTIONS
1. Do banks check income and employment details for both the secured and the unsecured type of credit cards?
For secured credit cards, there’s typically no income check or occupation verification required. For unsecured credit cards, banks thoroughly check income, occupation, and employer profile as part of the credit assessment process.
2. How do credit limits differ between secured and unsecured credit cards?
The credit limit for secured credit cards is usually 75% to 85% of the amount in your fixed deposit. For example, if you have an FD of Rs.1 lakh, your credit limit would be around Rs. 75,000 to Rs. 85,000. For unsecured credit cards, the limit is calculated based on your income and creditworthiness.
3. Do secured and unsecured credit cards provide the same features and benefits?
The features offered on both types of cards remain almost the same, based on the card variant. Premium cards, whether secured or unsecured, generally offer better benefits. However, unsecured credit cards often provide a greater variety of rewards and perks.
4. Who should apply for a secured credit card in India?
Secured credit cards are ideal for:
- People with no credit history who want to establish credit for the first time
- Individuals who do not have a good credit score and who want to build their credit profile.
- Those who don’t qualify for unsecured credit cards due to inadequate income, job profile, or location constraints
5. What is the least credit score needed for secured and unsecured credit cards?
Secured credit cards don’t require any minimum credit score, making them accessible to everyone. For unsecured credit cards, a credit score of 750 and above generally increases your chances of approval in India.
