When you are trying to rebuild credit, a common suggestion is to open a new credit card that you can absolutely make payments on. One of the fastest ways to rebuild credit is to make sure it is revolving: keeping the balances low each month and paying them off.

Building credit with a secured credit card will often get you a better credit score if you have had poor credit or filed for bankruptcy in the past, but why? What is the difference between an unsecured card and a secured one, and how will they affect your credit?

Secured credit card

When you open a secured credit card, you must put a deposit down, say $500, that will act as your spending limit. Your spending is “secured” by the money that you have put down. As time goes on, you can put more money down to increase your limit and if you continuously show good credit, the lending company may choose to increase the limit without you having to add money.

Secured cards are typically more beneficial for individuals with poor or no credit because they are seen as less risky. You are spending the money that you have deposited. This will help you keep track of the money you are spending without falling into debt that you cannot repay.

Unsecured credit card

An unsecured credit card is what most people with established credit open. This type of card does not require a deposit, as the credit company will run analytics to create a credit limit, interest rate, etc.

Individuals with poor credit will likely not benefit from an unsecured credit card because they come with higher interest rates and fees and tempt you with money that you may not be able to repay.