Secured vs Unsecured Credit Cards

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The difference between secured vs unsecured credit cards is not a topic that comes up often, but if you’re new to credit cards, you should know how they work.

Most people know there are numerous types of credit cards. There’s cash back, travel rewards, store cards, and more. But if you were to ask them if they have a secured credit card or an unsecured credit card, they would have no idea. Keep reading this post to find out the differences between secured vs unsecured credit cards.

What is a secured credit card?

As you may have figured out from the name, a secured credit card is a credit card that is essentially backed by a security deposit. You, as the cardholder, would provide this security deposit to the financial institution as a guarantee that you will make your credit card payments. If you do not make your payments, the bank or financial institution will claim that security deposit against the outstanding charges.

The minimum security deposit amount depends on the credit card limit and the credit card itself. At its lowest, it will be the amount of the credit limit. So if your credit card limit is $500, that’s the price of the security deposit. However, it can go as high as double your credit card limit, so with our example, it would then be $1000. If you want a higher credit limit, you would add more security funds.

Secured credit cards are easy to get since they’re meant for building credit. The requirements to get a card are quite low since there’s no credit check or minimum income requirement.

How does a secured credit card work?

Aside from needing the security deposit as collateral, a secured credit card works pretty much the same as any other credit card. You can charge purchases to your credit card, and you get an interest-free period. As long as you pay off the full balance before your due date, your lender won’t charge you any interest.

With a secured card, you won’t get any perks, but that’s okay, as it’s meant to help people with bad credit. As you make your monthly payments, your credit history will get reported to the major credit bureaus (Equifax and Transunion). Eventually, your credit score will increase over time. Once you have a good credit report, you can apply for a traditional card from any credit card issuer.

Having a good credit score is essential if you ever need a loan in the future such as a line of credit or mortgage.

What is an unsecured credit card?

An unsecured credit card then is, by default, a credit card that does not require a security deposit. In fact, an unsecured credit card is what typically comes to mind when Canadians think of credit cards.

Due to the fact that there is no security deposit requirement, the application process for an unsecured card is a bit more in-depth and often requires a monthly income requirement and a good credit score. This is because credit card companies have nothing to fall back on should you not make your payments. 

Unsecured credit cards also tend to have perks and benefits. Just look at my list of the best cash back credit cards in Canada, you would never get those kinds of benefits with a secured credit card.

Of course, to be able to maintain your excellent credit score and ability to apply and qualify for unsecured credit cards, you need to stay on top of your payments and pay at least the monthly minimums on time. Check your credit score for free with Borrowell if you’re not what your’s is.

Secured credit cards vs unsecured credit cards differences

The biggest difference between secured and unsecured credit cards is the required security deposit for secured credit cards. However, there are a few more differences (and similarities) that are worth noting.


  • secured credit cards are easier to apply for, unsecured credit card applications have more requirements to qualify
  • secured credit cards may have a set-up fee (unsecured credit cards do not)
  • secured credit cards are basic, there’s no chance at earning points or rewards vs unsecured credit cards often have perks, bonuses, and rewards programs
  • secured credit cards may have higher interest rates


  • Both types of credit cards will build your credit score
  • Both types of cards may have an annual fee (depends on the credit card)

Secured or unsecured credit cards: which is better?

The best answer to this question is; it depends on your situation. If you’re a young Canadian just starting out with credit cards and building a credit score, or a new immigrant to Canada, or perhaps someone who has filed for bankruptcy in the past or just has a low credit score, then a secured credit card is a smart choice. It’s the best option to help you build poor credit by using a credit card.

If this is not the case, then you are better off going with a secured credit card. They have more perks, benefits, and bonuses that consumers find valuable plus lower interest rates.

With that in mind, here are my top picks for the best secured credit card and the best unsecured credit card in Canada.

How to improve your credit score

Besides having your credit card account in good standing, there are a few other ways you can improve your credit score.

  • Avoid late payments – Paying the full balance when your billing cycles end will help you boost your credit score. If you can’t afford to pay the entire bill, at least make the minimum monthly payment.
  • Keep your credit utilization ratio low – The amount of credit you use relative to what you have access to is known as your credit utilization ratio. Try to keep yours under 30%.
  • Limit credit applications – Every time you apply for new credit, your credit score drops by 5 – 10 points, so limit your applications.

The best secured credit card in Canada

There are a few choices for secured credit cards in Canada. As mentioned above, some of higher interest rates but those also tend to charge an annual fee, so it’s best to strategize on this and think ahead when choosing a secured credit card.

Personally, I suggest the Home Trust Secured Annual Fee Visa. It does have an annual fee of $59, however, it also has a low interest rate of 14.90%. This makes it ideal for those who may not be able to pay off the entire amount every month and will have to carry a balance. The minimum deposit required for this card is $500, and all you need to apply is to have a bank account.

The best unsecured credit card in Canada

There is no shortage of unsecured credit cards in Canada, and the best one really depends on what you are looking for. Check out some of my best of lists for inspiration:

Final thoughts

At the end of the day, when it comes to secured vs unsecured credit cards in Canada, unsecured credit cards will likely be your first choice. There is no security deposit required plus you’ll have the option to earn rewards/points and get perks depending on the card. That being said, these cards aren’t always easy to apply for and not everyone qualifies. So, if you are new to Canada, new to credit cards, or building your credit score, then unsecured credit cards are a great option.

About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi

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