Are credit cards considered a type of secured debt?

Credit cards are classified as unsecured debt. This means that they are not backed by any collateral. When a borrower uses a credit card, they are essentially borrowing money from the issuing bank with the understanding that they will repay it, typically with interest, at a later date. If the borrower fails to repay the borrowed amount, the credit card company does not have any specific asset they can claim, unlike secured debts such as mortgages or auto loans where physical property is pledged as collateral.

In contrast, secured debts are great examples like mortgages or car loans, where the lender has a claim to the asset if the borrower defaults. The distinction between secured and unsecured debt is essential in understanding risk; unsecured debt generally carries higher interest rates due to the increased risk to the lender, as there is no collateral to recoup losses.