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Switching from a secured to an unsecured credit card

Here's what to expect when you decide to make the switch.

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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 when you can’t get a credit card in any other way.

With a card that reports your responsible spending and on-time payments to all three credit bureaus, you can further boost your overall credit score.

By staying focused on the end goal of improving your credit score, you just might be able to move from a secured to unsecured card. Here’s what to look for when weighing whether and when to make the switch.

What you’ll find in this guide

Why make the switch to an unsecured card?

The main reason for using a secured card is to increase your overall 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. They also typically come with fewer fees and higher credit limits than unsecured cards. Many unsecured cards also offer strong perks for responsible spending, like cashback rewards, airline miles or gift cards.

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 same account number to the new card. You can also expect to get your deposit back.

If your secured credit card doesn’t offer the option to upgrade, or you’re simply in a better position to pick a stronger card, start by looking for an unsecured card with no annual fee or a low APR.

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. You’ll also want to keep an eye on your credit utilization ratio — or how much you’re spending against 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 each month.

Some credit cards print your credit score on each monthly statement, allowing you an easy way to track the progress of your financial health. When your credit score reaches at least 650, look into an upgrade to unsecured options — especially unsecured cards that offer rewards.

What are the advantages of converting to an unsecured card?

Converting to an unsecured card can help you pay fewer fees and lower interest on your purchases. That’s because many secured cards charge annual and monthly fees for the benefit of improving your credit. Some cards even charge you for a fee for each swipe or dip at checkout.

After you’ve proven yourself a responsible cardholder, you’re often eligible for lower APR on your purchases. You might even find a secured card offering signup bonuses or no or lower interest for an introductory period of 6 to 12 months or more.

With a high credit score, you’ll have many options to choose from, helping you to narrow down the best card 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 stronger cards. But if you’re canceling your secured card to take up an unsecured option, you might see a slight drop in your FICO score.

Your FICO score depends on elements that include the overall age of your accounts and your credit utilization ratio. In the interim of switching to an unsecured card, your new card lowers the average age of your active accounts. Also, canceling 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.

Still, on-time payments are weighed more heavily into your overall credit score, as is your progress in rehabilitating your credit. In most cases, switching to an unsecured card is well worth any temporary dings to your credit score.

How to upgrade to an unsecured card

When you’re ready to apply for an unsecured card, you have two main options:

Upgrading with your current issuer

Contact your current secured card provider to see if it offers an unsecured option. That way, you can more easily upgrade your card without a new application.

Secured cards issued by reputable banks or a credit union are likely to offer stronger terms and even higher credit limits on their graduated unsecured cards. Think of it as an 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.

Apply for an unsecured card

When your credit score has improved, you can try applying for a credit card like normal. Your rates and terms might not prove the greatest, but your improved score can help you attain a card that you may have previously been denied.

Converting to an unsecured card with a different issuer

Converting 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, 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, protecting your credit score from being negatively affected.

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.

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What should I do if I am turned down for an unsecured card?

What to do if turned down

If your initial applications for an unsecured credit card are rejected, it might mean that your credit score isn’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 issuer 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. Note that this can tie 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.

Should I close my secured credit card?

Yes and no. Once you’ve graduated to an unsecured card, you might feel compelled to celebrate by closing your secured card account and retrieving your deposit.

However, there are a few reasons you might choose to keep the secured card open, at least for a bit longer. First, closing your secured card account will reduce the average age of your card account. This metric is something issuers look at when determining your eligibility for other products and is also a factor in determining your credit score. Closing the account too quickly after obtaining your unsecured card could negatively impact both of these factors.

The second reason comes down to your credit utilization ratio. Secured cards still count toward your credit utilization ratio, which plays an important role in your credit score. Closing your secured card can lower your available credit and potentially increase your risk of going above the recommended 30% ratio.

How to close your secured card

Once you’re sure you want to close your secured card, here’s what to do:

  1. Call cardmember services or the number on the back of your card.
  2. Tell them the date you’d like to close your card and arrange to pay off all unpaid balances before that date.
  3. Confirm that your secured credit card provider has a current address and contact details on file, and confirm the method and date on which you’ll receive a refund of any deposit you put down when signing up.

Don’t expect to access your deposit refund right away. Some banks retain the deposit for a few billing cycles — between 30 to 90 days — to catch any stray charges that might appear in the interim. 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 to keep your credit history in good shape.

Compare secured credit cards to find one that best suits your financial situation. And once you’re ready to graduate, choose an unsecured card that fits your purchasing tastes.

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