Unsecured Credit Cards

Unsecured credit cards are the most common type of credit cards. Actually, the other name of unsecured credit cards is standard credit cards because they happen to be the first type of credit card and still they are the most popular one.

Unlike secured credit cards, which require a deposit or a co-lateral, unsecured credit cards allow you to borrow money. They are the most typical form of credit card and they are like a loan but without the bureaucracy that accompanies loans. All the stuff that has been written on this site about credit cards in general applies to unsecured credit cards.

With unsecured credit cards you purchase the goods, pay with your card and then you pay the amount back to your credit card issuer. There is a grace (or introductory) period, which can be as long as six months or even more and if you manage to pay the whole amount before the grace period is over, you don't pay interest. But if you fail to pay the total amount, i.e. you keep a balance on your credit card, you will pay interest. Missing a payment (or being late with it) is a deadly sin and you should do it only if you are really unable to meet your payment deadline because if you miss a payment, this damages your credit report for long time ahead.

Unsecured credit cards are issued upon request but if your credit history is not good, the chance to obtain such a card are minimal. Your current income is also a factor of importance because even if you have been a brilliant payee in the past and your current income is low, the credit issuer will have doubts about your ability to pay back your credit. Still, even if your credit history is far from perfect, you might be able to get an unsecured credit card but it is more likely that its terms will not be favorable for you because the issuer needs to make sure that they will not lose their money.

Unsecured cards come in many varieties and the major differences between them are related to interest rate, fees, grace periods, and credit limits. If you are a new customer you will hardly be able to get the best interest rates. More likely, you will be offered a higher interest rate card and if you behave properly (i.e. pay back on time), in a year or two you might be offered a better deal.

Fees are another differentiator. Thanks to the fierce competition among credit cards issuers, there are already many credit cards without annual fees. However, there might be other fees and charges, so reading the Card Holder agreement in full is mandatory because the fact that you have a low interest rate credit card without an annual fee is not so marvelous, when the per-transaction fees, for example, are shockingly high.

Grace periods are also important, especially if you plan to buy a lot and pay later. The longer the grace period, the better for you, the customer. Still, if a longer grace period is compensated by low credit limits, for example, this might not be your dream come true.

Credit limits are one more difference between the various types of unsecured credit cards. Usually standard (or classic) credit cards have lower limit (under $2,000), while higher limits – in range of $5,000, $50,000 or even more are reserved for gold and platinum cards. Additionally, gold and platinum cards might offer other benefits, like reward programs, shopping bonuses, etc. Not all issuers have gold and platinum cards and even those who have them, don't offer them to everybody.