Unsecured Credit: Unsecured credit cards are not secured by collateral.

• A. Unsecured credit cards are not secured by collateral.
• B. They are secured by collateral such as a house or car.
• C. They require collateral deposit.
• D. They are always insured by the state.

Answer: (A)

Unsecured credit means no asset is pledged to guarantee repayment. For unsecured credit cards, approval comes from your creditworthiness—your credit score, income, and past payment history—rather than a collateral asset. Because there’s no collateral backing the debt, the lender bears more risk and relies on your promise to repay; they may offset that risk with higher interest rates, lower credit limits, or penalties if you miss payments. In contrast, secured credit involves pledging something of value, like a house, a car, or a cash deposit, which the lender can claim if you don’t repay. State-backed insurance doesn’t apply to credit card debt itself, though bank deposits can be insured separately. So the statement that unsecured credit cards are not secured by collateral is accurate.