Compare Secured and Unsecured Credit Cards

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The credit card industry is one of the biggest, most competitive, and most profitable out there. Credit consumers today have more options than ever and there are a lot factors t to evaluate. One of the first questions is whether to get a secured or unsecured credit card. Some people may not think the choice between secured and unsecured credit cards is a tough one, but it’s not as simple as you might think. There are several angles to consider, but first let’s look at the basic characteristics of both types of credit cards.

Secured Credit Cards

Easy approval, often guaranteed. Great for building credit score and history, or rebuilding after bankruptcy.Requires a security deposit, usually equal to the amount of the credit extended. Often carries a monthly fee to maintain the account. Typically charges high interest rates on purchases, 21% and above.

Rarely offer balance transfers.

Unsecured Credit Cards

Approval based on credit worthiness (score and history). Good for improving your credit if you use them wisely. No security deposit required, limit determined by credit card company (depending on credit score and household income). May or may not charge an annual fee to maintain the account. Cards with rewards such as sky miles often carry annual fees. Interest rates on purchases can range from 9.9% to 21% or more. Often offer balance transfer options with promotional interest rates. It’s obviously easier to get unsecured credit cards with fair credit, and you’d probably rather not have to put down a security deposit.

Basically, unsecured credit cards are the better tool in the long run, but that doesn’t help those people that have bad credit and need some credit now. My advice is that people should get unsecured credit cards with low rates, no annual fee, and a rewards program if possible.

If it’s not possible to get an unsecured credit card, shop around for the best possible rates and try to avoid fees whenever possible. Use the secured credit card wisely for several months and soon you’ll probably get offers from companies for the unsecured variety.

When you get those unsecured credit card offers, look for one with a well-known company and one that offers a low or 0% introductory interest rate for at least six months. That way you get the benefit of using their money for ‘free’ until the promotional period ends. Make sure you pay the balance monthly!

Fixed Rate Student Credit Cards (That Even Allow Balance Transfers!)

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Before we talk about fixed rate student credit cards, we should talk about fixed rate credit cards in general. A fixed rate credit card isn’t such a common thing. Why?

Because interest rates change, that’s why. Think about it – every so often you hear an announcement that the Fed is raising or lowering interest rates. When they do that, all interest rates change with the ripple effect. It’s a good thing and a bad thing for all of us that use the financial institutions (which is pretty much everybody).

For example, when rates go up theirs an upside and a downside. On the downside, it gets more expensive to borrow money. Auto loans, mortgages and credit cards all hike their rates to reflect what the Fed did. On the upside banks will usually pay more interest on savings accounts and other deposits. Any of you that have an ING Direct savings account know what I’m talking about. As interest rates have climbed, I’ve seen them raise the rate they pay on my online savings account to over 5%. Not a bad deal.

Now, in some cases credit card companies will offer a fixed rate on a credit card for as long as you have the card open (for example: Prime + 3.99%). They do it to entice people who don’t like the idea of having a credit card at 18% or 21%. If you’re going to get a fixed rate credit card, though, you probably need a pretty good credit score and some credit history.

So What About Fixed Rate Student Credit Cards?

I found IndexCreditCards.com, which gives a long list of student credit card offers. Only two on the list mentioned a fixed interest rate:

• AmTrust Bank (formerly Ohio Savings Bank) Student Credit Card – offers a fixed rate of 7.9% or 13.99%, depending on your credit worthiness.
• Sovereign Bank Student Credit Card – 9.9% or 15.99%, also based on credit worthiness.

The reality is it’s tough for students to get fixed rate credit cards because they’re still a risk to the credit card company. If you can’t get one of the two I’ve listed above you may have to use a variable (high) rate card until you’ve proven you can handle a credit card.