Credit Card Types: Unsecured

Posted by Nick Niesen on October 29th, 2010

There are two basic credit card types: secured and unsecured. This article explores some of the issues associated with unsecured credit cards.

First, what is an unsecured credit card? An unsecured credit card is a card (and credit line) that does not require any security deposit from you. These unsecured credit cards are generally intended for those people with a fairly good credit history.

Nearly all unsecured credit cards will come with a credit limit. This is the total amount of credit that you can charge to the card. If you go over that limit, you may be penalized. The actual amount of the credit limit is determined by the card issuer and it does not have to be same for every person. In other words, one person may have a limit of $500 while another may have a limit of $5000.

There are some important issues associated with an unsecured credit card that consumers should understand. A few of those issues include:

The Grace Period: You should read and understand the grace period that applies to each of your credit cards. The grace period is the amount of time that you have to pay your balance before the card issuer begins charging you interest on the balance. If you pay your balance in full before the grace period ends you will not be charged interest. Each company has its own amount of time for grace payments so be sure you read each company's policy.

Annual Fee: Before you apply for an unsecured credit card see if the company charges an annual fee. This is a yearly fee that is charged to your account or may have to be paid in advance. Annual fees are more often associated with secured credit cards but you may see them with unsecured as well.

Balance Transfer: Your unsecured credit card may offer what is known as a balance transfer. A balance transfer is when you have an existing balance with another company and you transfer that balance over to the new card.

Why would you do this? If the new card has a substantially lower interest rate you can save money.

Annual Percentage Rate: Of particular interest to anyone who plans to apply for or use an unsecured credit card is the APR that is associated with the card. This is the amount of interest that the company will charge you if you do not pay off the full balance within the grace period allowed. As you might imagine, the lower the ARP, the less you will have to pay in interest charges.

Finance Charge: Your unsecured credit card may include finance charges that are above and beyond the APR. Finance charges are most often triggered when you take out a cash advance. Again, make sure you understand these charges before you use the card for purposes that trigger added finance charges.

Gold or Platinum Cards: These cards usually carry a higher credit limit and may come with some extra benefits or reward programs. These are nice to have but make sure you are not paying extra for something that you will not use.