Switching from a secured to an unsecured credit card

When you know what to expect, switching to an unsecured credit card is simple.

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Secured credit cards are often the go-to option for applicants with no credit history or poor credit. These cards are a solid tool to help you build or rebuild your credit history, especially if you’ve been rejected for an unsecured card in the past.

With a credit card that reports your responsible spending and on-time payments to both credit bureaus, you can work on building up your credit score. By staying focused on the end goal of improving your credit score, you just might be eligible for an upgrade to an unsecured credit card. Here’s what you need to know when making the switch.

Why make the switch to an unsecured card?

The main reason for using a secured card is to increase your credit score. After you’ve built your credit score to at least 650, you could be ready for an unsecured card.

Unlike a secured card, unsecured credit cards don’t require a deposit as collateral. They also typically come with fewer fees and higher credit limits than secured cards. Many unsecured cards also offer great perks for responsible spending, like cash back rewards, points per dollar spent and competitive interest rates.

Where do I begin?

First, look into whether your credit card provider offers an unsecured option. Upgrading to an unsecured version of your secured card can be the easiest way to transition into a better credit card, sometimes allowing you to transfer your account number to the new card. You can also expect to get your deposit back once you pay off your secured credit card balance in full.

How long should I wait until switching to an unsecured card?

Typically, you’ll need at least 12 months of on-time and regular payments on your secured card to improve your credit score. You’ll also want to keep an eye on your credit utilization ratio — or how much you’re spending each month compared to your credit limit. If you owe more than 30% on any one credit card at any point during your monthly billing cycle, it could result in a lower credit score, even if you pay off your balances in full each month.

What are the advantages when switching to an unsecured card?

Many secured cards charge annual and monthly fees for the benefit of improving your credit score. Converting to an unsecured credit card can help you pay fewer monthly or annual fees and lower interest on your purchases and balance transfers.

  • With a high credit score, you’ll have many options to choose from. Narrow down your options by determining the best features for your needs.

How is my credit score affected by a switch?

Converting or graduating to an unsecured card is a milestone that shows you’ve improved your overall credit history enough to qualify for better cards. However, if you’re cancelling your secured card to take up an unsecured option, you might see a slight drop in your credit score.

  • Your credit score depends on elements that include the overall age of your accounts and your credit utilization ratio. When applying for a new card, your new card lowers the average age of your active accounts.
  • Cancelling a secured card could raise your average credit utilization, if you carry balances on your other cards. To soften the blow, wait to close your secured card until you’re approved for an unsecured option.

In most cases, switching to an unsecured card is well worth any temporary dips to your credit score.

How to upgrade to an unsecured card

When you’re ready to apply for an unsecured card, contact your current secured card provider to see if it offers an unsecured option. That way, you can skip the application process and directly deal with your current provider.

Secured cards issued by reputable banks or credit unions are likely to offer better terms and higher credit limits when you want to upgrade your card to an unsecured one. Think of it as enticement to keep you from going elsewhere — after all, it’s easier and cheaper for your provider to keep you as a customer than it is for them to find a new one.

If your secured card lets you graduate to an unsecured card, check if you can carry over your opening date and account number to the new account to maintain the average age of the accounts in your credit history.

If you decide that you’d like to apply for a credit card with a different bank, you’ll need to do your research and compare credit cards before lodging an application.

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$200 - $10,000
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$12.95
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Converting to an unsecured card with a different provider

Switching to an unsecured card with another provider simply requires you to find an unsecured option you’re eligible for that fits your needs. Look for one that offers perks like rewards or credit toward the things you love in life.

After you’ve narrowed down an unsecured card that you’re interested in, hold off on closing your secured account until approval. That way, you’ll better balance the overall age of your credit history and your credit utilization while you apply for your new card.

Be aware

Generally, be wary of secured credit card providers offering a higher credit limit for staying with them. There’s no reason to keep a secured credit card after you’ve improved your credit score enough for an unsecured one.

What should I do if I’m rejected for an unsecured card?

If your initial applications for an unsecured credit card are rejected, it might mean that your credit score hasn’t yet improved enough. Continue building your credit with your secured card, spending responsibly and paying all statements on time. After you see further improvement, check back with the provider or reapply.

While it may not be an option for everybody, one way to change your credit utilization ratio is to increase your deposit amount on your secured card, effectively raising your approved credit limit. Doing so, however, ties up more of your cash into a deposit – and you might also have to pay a fee to raise your limit, depending on your provider.

How to close your secured card account

When you’re ready to close your secured card, call your provider and tell them the date you’d like to close your card. Before you close your card account, be sure to pay off your balance in full and stop any pre-authorized payments.

Confirm that your secured credit card provider has your current address and contact details on file, and confirm the method and date on which you’ll receive the refund of your deposit you put down when signing up for the card.

Don’t expect to access your deposit refund right away. Some banks retain the deposit for a few billing cycles — say, between 30 to 90 days — to catch any stray charges that might appear in the meantime. Wait to cut up your secured credit card until after you receive your deposit.

Bottom line

A secured credit card can help you better understand your finances before you enter — or re-enter — the world of unsecured credit. After you have an unsecured card in hand, maintain the prudent financial management habits you learned while using your secured card to keep your credit history in good shape.

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