Upgrading Secured Credit Card to Unsecured
Many of us start building their credit histories with the help of a secured credit card. Those who have bad credit also often use secured credit cards to rebuild their credit as credit card issuers usually approve nearly all applicants for this kind of credit cards.
In order to open a secured credit card account, you have to pay at least a minimum collateral deposit, which is typically refundable. This deposit you pay usually becomes your credit limit. When secured credit card users have no difficulties with managing their credit account, it is natural for them to open a regular, unsecured credit card or upgrade their current secured credit card to unsecured one and receive their collateral deposit back.
Here are some tips on how to graduate from a secured credit card to an unsecured one without hassles.
Always pay on time
Payment history is one of the important factors in credit improving, it makes 34% of your FICO credit score. Most secured credit cards come with a reporting to all three major credit bureaus feature, so your on-time payments can improve your credit score. To make sure you pay on time, activate text and email reminders or enable automatic payments though the card issuer.
Keep balances low
Amounts owed is another important factor in improving your credit, it makes 30% of your FICO credit score. A secured credit card is still like a regular credit card and if you carry a balance on it, using most of your available credit limit, it can have a negative impact on your credit score. Ideally, you should use only 30% of your available credit on one credit account. Paying off the card balance in full each month is also good for your credit score, plus it will help you avoid interest charges.
Don’t expect instant results when you build or rebuild your credit history. This process will require all your patience and responsibility. In most cases you will see noticeable changes to your credit score in about six months of on-time payments. And your credit score will improve enough to move to a regular credit card only after a year or responsible credit card use.
Talk to your card issuer first
Many secured credit card issuers allow their cardholders upgrade their secured credit account to unsecured one after twelve months. You will need to either request your card upgrade, or your account will be reviewed automatically. If you qualify, the issuer will return your security deposit while you continue to use your card.
If your issuer does not allow upgrades but offer unsecured credit cards, you can apply for one. When approved, don’t close your secured card right away because it will shorten the average age of your credit accounts and as a result your credit score will drop. Instead, keep your secured credit card active showing minimum activity on it to keep your credit healthy.
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