All credit cards fall into two basic categories. They are called secured and unsecured credit cards. Unsecured credit cards are much more common than secured credit cards.
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When speaking of credit cards, most people refer to unsecured credit cards. The difference between the two has to do with the credit extended to a customer by the lender. The major credit card companies mainly deal in unsecured credit cards.
What are unsecured credit cards?
When a consumer applies for a credit card, they are usually applying for an unsecured credit card. Consumers are asking the credit card company to lend money to them with a promise to pay it back; this is called credit. Unsecured credit cards use credit; that is, there is no security that the customer will pay back the charges made to the card. The credit card company assumes all of the risk of losing money.
Credit card companies have many ways to check how likely a consumer is to pay back the money borrowed on credit. They check credit ratings and bill payment histories to try to lessen the risk of not being paid back. If a customer has a low credit rating, then the credit card companies will view that customer as too high of a risk, and they might not extend credit to that customer.
What are secured credit cards?
Secured credit cards are generally used by consumers who do not meet the credit card companies’ requirements to receive credit. Customers must make a cash deposit to get a secured credit card. The spending limit on the card matches the deposit. This way, if a customer fails to pay for purchases made with the secured credit card, then the credit card issuer can keep the deposit to cover the cost. Secured credit cards have very little risk for the credit card companies.
How does a consumer get an unsecured credit card?
A consumer starts by applying for an unsecured credit card. The application process generally requires an applicant’s personal information such as name, date of birth and address. Other information required on the application is an applicant’s social security number and annual income.
The credit card companies use this information to verify the identity of the applicant. The information is also used to access an applicant’s credit report. The three major credit-reporting agencies that are typically used are Experian, Equifax and TransUnion.
An applicant’s credit report lets credit card lenders know how likely the applicant is to repay the charges made with unsecured credit cards. A good history of repaying bills will result in a high credit rating that will help the application to be approved. A low credit rating due to unpaid bills, bankruptcy, or civil judgments can result in a credit card application being denied.
By law, consumers are entitled to one free credit report in a 12-month span from each of the major credit reporting agencies. This is the best way for consumers to monitor their credit ratings. Consumers can go to the reporting agencies’ sites or to AnnualCreditReport.com to get a free credit report without having to enter a credit card number or join a membership.
What companies issue unsecured credit cards?
Major credit card companies include Visa, MasterCard, American Express, Capital One, and Discover. These companies offer cards directly to customers as well as work with banks to back bank credit cards and debit cards.
What are the largest credit card companies that offer unsecured credit cards?
Visa, American Express and MasterCard are considered the biggest credit card companies that offer a variety of credit cards. These companies have the highest number of customers and revenue in the United States; they all have a wide array of unsecured credit cards available.
What are the best companies that offer unsecured credit cards?
The best credit card companies are those that have the best interest rates, the lowest fees, and the best customer service. It will also depend on how a consumer wants to use a credit card. Some want credit cards just for emergencies, some desire cards that have rewards and others are looking for small business credit cards.
JD Power and Associates lists the satisfaction ratings of many major credit card companies and the retail banks that offer the cards. Researching the rates, fees, and customer satisfaction assessments of the unsecured credit cards available is the best way to find the top credit card companies.
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