iQuanti: Secured credit cards provide individuals with the opportunity to build their credit. Whether you're starting with zero credit or hoping to repair a damaged score, secured credit cards are a great tool for developing good habits and improving your financial status. However, while these cards can be beneficial in the beginning stages of credit building, they're not ideal for using forever.
How do Secured Credit Cards Work?
Secured credit cards work by placing a deposit down and having a line of credit secured by that deposit. When you don't have an established positive credit history, this protects the bank in the case that you don't make payments.
However, this is limiting in the case of emergencies, which is what many people rely on their credit cards for as you can only spend as much as you can afford to put down. Aside from the deposit, a secured card will function just the same as a traditional unsecured credit card, including reports to credit bureaus that detail credit history, payments, and more.
When to Switch Secured Cards for Unsecured Cards
If you've maintained your secured card for over a year, made on-time payments, and have a solid credit score, it may be time to graduate to an unsecured card.
How to Switch Your Secured Card for an Unsecured Card
If your financial institution offers both an unsecured and secured credit option, the switch should be an easy one as you can transfer over accounts and "graduate" to a secured card. This situation is ideal as it will help your credit account age and history, something that factors into your credit score.
In-house Switch
- Call your financial institution - let customer service know that you would like to switch your secured card to an unsecured card and discuss your options. They should be able to help you navigate the next steps, including choosing a card that fits your lifestyle.
- Apply for the new card - in some cases, the switch from a secured to an unsecured credit card can be as easy as a few buttons on customer service's end. Otherwise, you may need to fill out an application that provides more detail on your current financial standings. You should also receive a refund for your deposit from the secured card through this process.
Changing Financial Institutions
In some cases, the financial institution that provided you with the secured card does not offer unsecured credit cards or is not willing to transfer your account over. If this happens, you will need to look for other options with different financial institutions.
- Check-in with your card issuer - Ask them about the process for closing your secured card, including the deposit refund timeline. You may want to wait until opening a new card to close your secured card to avoid a dip in your credit score.
- Shop for unsecured cards - It's easier than ever to shop online for credit cards and compare benefits across all card issuers. It's important to weigh the benefits you would like in a credit card against what you are eligible for. While cards offering amazing benefits sound great, they're usually reserved for those with the best credit. To avoid damaging the credit score that you've worked hard to build, apply for cards that are within your range.
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Original Source: How to Switch Your Secured Card for an Unsecured Card
