What is a No Deposit Credit Card?

N. Madison

A no deposit credit card is a credit card that is not secured. With this type of credit card, a credit card company offers an initial amount of credit, and the cardholder doesn't have to put any of his own money toward the available credit on the card. This is in contrast to a secured credit card to which a person must add money that accounts for part or all of the available credit amount. In general, no deposit credit cards are offered to people with good credit. Those with poor credit scores may have opt for secured, or deposit, credit cards instead.

No deposit credit cards generally have a lower interest rate than a secured credit card.
No deposit credit cards generally have a lower interest rate than a secured credit card.

When an individual applies for a no deposit credit card, he is essentially applying for a loan from a credit card company. For example, if a person applies for a credit card with a balance worth $500 US dollars (USD), he is asking a credit card company to give him a line of credit from which he can spend at will. If the individual charges something worth $100 USD, for instance, he is not using his own money. Instead, he is spending money the credit card company has lent to him. In exchange for this loan, he will usually have to pay interest in addition to the amount of money he borrowed.

No deposit credit cards are offered to people with good credit.
No deposit credit cards are offered to people with good credit.

A secured credit card works a bit differently. For example, a person may have a secured credit card with an opening balance of $300 USD. Before he can use this credit card, however, he would typically have to give the credit card company a deposit of $300 USD. In such a case, he would actually be using his own money when he made credit card purchases. It is important to note, however, that some credit card companies may require cardholders to deposit only a portion of their available credit amounts.

In general, a no deposit credit card is the more desirable type to have. Often, a person can start out with a higher credit limit with a no deposit credit card. Likewise, he may also enjoy a lower interest rate in addition to the knowledge that he is not paying interest to spend his own money. It is worth noting, however, that a person can use a secured credit card to rebuild his credit. Additionally, a credit card company may eventually increase the limit on a secured credit card without requiring the cardholder to pay an additional deposit.

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