Unsecured Credit Cards for Building Credit

Tara Seboldt
May 17, 2022

If you’re looking to build credit but are not sure of the best option to get started, you may want to consider credit cards.

First, it’s important to know how credit cards work and have a plan to use your card responsibly before you commit to being a cardholder.

In this article, you can learn more about using unsecured credit cards for building credit and how to choose the right card for your particular needs.

What is an Unsecured Credit Card?

When you think of a credit card, you’re probably thinking of an unsecured card.

An unsecured credit card doesn’t require collateral to secure your credit line. You can get unsecured cards from all of the major payment networks such as Visa, Mastercard, and Discover.

Unsecured Vs Secured Credit Cards

Secured credit cards require upfront collateral for approval, usually in the form of a refundable security deposit.

If you can’t pay your bill or stop making payments, your credit card company uses your deposit to cover your balance. This increases the approval odds for someone with poor credit.

Most secured credit cards refund your deposit after making consistent on-time payments. Secured cards usually start with a low credit limit, but you may qualify for a credit limit increase if you pay your bill on time.

Unsecured credit cards, on the other hand, often start with higher credit limits. And rather than using a deposit to secure your card, issuers use your creditworthiness to approve you for a card.

Oftentimes, this means you need a good credit score in order to qualify.

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How Do Credit Cards Build Credit?

Like other forms of credit, credit cards build credit by reporting your payment and other information to credit bureaus.

Three major credit bureaus—TransUnion, Equifax, and Experian—build credit reports.

Your credit report is used to calculate your FICO score. FICO credit scores are made up of five factors:

  1. Payment history: On-time payments are the most important part of your credit score. Each on-time payment on your credit card balance builds your credit score. Consistent on-time payments can help you get a better score over time.
  2. Credit utilization: Your credit utilization rate is how much available credit you have versus how much you’ve used. Credit cards are the easiest way to change your credit utilization. For example, if you have a credit limit of $500 and spend $250 on your card, you have a utilization ratio of 50%. It’s usually best to keep your rate under 30% if you can.
  3. Credit history age: The length of time you’ve been using credit can change your credit score. A longer credit history shows lenders that you have experience managing your credit cards and other accounts.
  4. Credit mix: Getting an unsecured credit card for building credit can help if you have other types of credit already. A good credit profile mix includes several different types of credit, such as a mortgage, car loan, or personal line of credit.
  5. New credit accounts: Opening too many credit cards at once can hurt your credit score. Multiple credit checks on your report could make lenders think you can’t manage your existing credit.

Are There Unsecured Credit Cards for Building Credit?

While unsecured cards usually have stricter credit requirements, you can still find options to help you build credit.

There are a few types of unsecured cards that often have better approval odds for fair credit.

  • Gas and retail cards: Branded cards, like a credit card for a big box store, sometimes have higher approval odds. However, you could be limited to only using the card at the store.
  • Student credit cards: You don’t have to be a college student to apply for a student card. These cards are targeted at students because they have low credit requirements, including options for no credit. Many student cards have low credit limits to help prevent overspending.
  • Rebuilding credit cards: Some credit card issuers offer cards specifically for rebuilding credit. Most rebuilding cards are secured, so you may have limited unsecured options.

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Is an Unsecured Credit Building Card for Me?

There’s no one-size-fits-all approach when it comes to building your credit history.

Review the pros and cons of using an unsecured credit card for building credit.

Pros of Unsecured Credit Cards

  • Build credit: On-time payments and responsible use can help build your credit score.
  • Earn rewards: Many unsecured credit cards include rewards programs. For example, a cash rewards credit card issues cash back rewards on purchases. Cardholders can apply cash back as a statement credit or transfer it to their bank account.
  • Additional perks: Most unsecured credit cards have additional perks for cardholders. For example, many credit cards offer free access to your credit score. A free credit score update can help you stay on track to reach your credit goals.
  • Fraud protection: If someone steals your card, you’ll have no fraud liability and won’t have to pay back the charges.

Cons of Unsecured Credit Cards

  • Difficult to qualify: It’s often difficult to qualify for an unsecured card if you have bad credit or no credit.
  • High interest rates: Most cards have a high APR compared to other types of credit. Often, your interest rate is a variable APR, meaning your rate can fluctuate depending on the current interest rate market.
  • Easy to overspend: Credit cards are easy to use—and easy to overuse. You could spend too much on your card and put yourself into credit card debt.
  • Could hurt credit: While making on-time payments and using your card responsibly can help your score, you can just as easily hurt your score. Missing monthly payments or making late payments brings your credit score down.

Choosing the Right Credit Building Card

Credit building cards are a great way to improve your credit score—if you use them correctly.

Consider a few things before signing up, including:

  • Fees: Many rewards cards have annual fees, though some have no annual fee for the first year. Other cards have foreign transaction fees if you make a purchase outside of the US. If you’re consolidating credit card debt, your new card may have a balance transfer fee.
  • Credit card interest: The high interest rates of credit cards can quickly cause a little overspending to be a big problem. Make sure you know the variable APR range for your card. You can avoid interest charges altogether by paying off your balance in full by your due date.
  • Credit limits: Your card will come with a credit limit. You’ll only be able to spend up to the limit before you have to pay off all or part of the balance to keep using your card. Overspending and reaching your limit can hurt your credit utilization ratio.

Start Building Credit Today

Building credit takes time. You may have to make on-time payments consistently to get a better credit score.

Get started today by comparing your credit-building options to find which one best fits your financial situation.

Tara Seboldt

Tara is a financial writer with over five years of professional writing experience. She previously worked at a financial planning firm. Tara uses this professional experience to help readers better understand their finances and make smart financial moves. When she’s not writing about money, Tara enjoys spending time in the Idaho mountains hiking, camping, and skiing.

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