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How to Transition from Secured to Unsecured Credit Card
Key takeaways
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After 6-12 months of responsible secured card use, including on-time payments and low credit utilization, you may qualify for an unsecured card
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To transition successfully, it helps to maintain on-time payments, keep credit utilization low, and regularly monitor your credit score and reports for accuracy
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Your refundable cash deposit typically is returned as a statement credit when graduating or is refunded when you close your secured card account
People with no credit or a spotty credit history often turn to secured credit cards to help them build or rebuild their credit scores. The good news: After using a secured card responsibly for a period of time, they may become eligible to graduate to an unsecured card.
If that's you, this article will explain how to graduate from a secured credit card to an unsecured one, how long it may take to move from secured to unsecured, and what the transition could mean for your financial future.
What is a secured credit card?
A secured credit card is one that requires you to make a cash deposit with the card issuer. The credit line typically is the same amount as the cash deposit, typically between $200 and $500.
Card issuers may still review your credit or other information as part of the application process, and requirements can vary by issuer.
You use a secured credit card the same way as an unsecured card. Since the goal is to build credit with a secured card, you should use the card responsibly, being careful to keep balances low, make on-time payments, and always pay the balance each month, or more than the minimum.
Responsible credit card habits for building credit, such as keeping credit utilization low on a secured card, are critical.
What is an unsecured credit card?
An unsecured credit card, the most common type of card, is one that does not require a cash deposit. The card issuer decides, based in part on your credit history and credit score, that you are creditworthy.
The issuer extends a credit line to you, trusting that you will follow their terms and conditions, make on-time payments, stay within the credit limit, and generally use the card responsibly.
How do I transition from secured to unsecured credit cards?
Here are seven things you can do to help yourself move from a secured credit card to an unsecured card.
Build a positive payment history
Credit scores are generally influenced by factors like your payment history and amounts owed, regardless of the type of card you have.
On-time payments typically are the most important factor in boosting a credit score, followed by keeping balances low.
Keep credit utilization low
Credit utilization is the percentage of available credit you use on your credit cards and/or other lines of credit. On some scoring models—such as a FICO® Score—“amounts owed” (which can include revolving balances and utilization) is a major factor.
Experts generally recommend that you don't use more than 30% of your available credit at any one time. Under that guideline, if you had a $400 limit on your secured card, you would try to keep the balance at $120 or less.
But if you're focused on qualifying for an unsecured credit card, you might want to aim for a utilization ratio well below 30% when possible. That may mean that you're charging as little as $40 a month on that $400 limit.
Avoid late payments
A payment that is even a day or two late will likely incur a fee or penalty, so you want to avoid those. If a payment is reported as being 30 days late, it may negatively impact your credit scores, and the impact can vary depending on your overall credit profile and the scoring model used (such as FICO® Score or VantageScore®).
Payments that are even later could lead the card issuer to send your account to collection, which would further damage your credit history. You can't use the cash deposit to make a payment, but if you miss payments the credit card issuer could eventually take your cash deposit.
Increase your credit score
To qualify for an unsecured card, you might need to build your score to a range the issuer considers acceptable. Many lenders view a FICO® Score in the 580–669 range as “fair,” but requirements can vary by card and issuer.
A secured card, which may be available to people with limited credit or lower scores, can help you build your score until you qualify for an unsecured card.
Many banks, credit unions, card issuers, and the credit bureaus themselves let you check your credit score for free.
Regularly check your credit reports
In addition to checking your credit score, you want to make sure your credit report is accurate. Regularly reviewing your credit report can help you correct mistakes that might be impacting your score.
The three major credit bureaus each allow you to check your credit report as frequently as once a week.
Ask your issuer about graduation eligibility
When you apply for a secured credit card, find out from the issuer what the requirements are for graduating to an unsecured credit card. Ask questions like:
- How many months of payment history do they require?
- What credit score range is needed?
- Will they graduate your card automatically, or will you need to apply?
Apply for an unsecured card if you can’t graduate
If your card issuer won't provide a way to graduate to an unsecured card, you might consider applying to another company once your credit score, payment history, credit utilization, and credit report are on firmer ground.
Applying for unsecured credit cards is easy — most issuers will let you apply online. Look for issuers who will give a pre-approval without doing a hard inquiry or "hard pull" on your credit report until after you're approved. Too many hard inquiries in a short period of time could have a negative impact on your credit score.
What is the credit card graduation timeline?
In general, it takes 6 to 12 months of responsible use to qualify for a transition to an unsecured credit card. However, your timeline may vary based on factors like:
- Payment history
- Credit utilization
- Overall credit history (rent, utilities, etc.)
A credit card issuer may perform an automatic review of your card usage after 6 months, but some may require you to request a manual review.
What happens to your cash deposit?
Your cash deposit is refundable, assuming you have used your secured card responsibly. Refund policies vary with card issuers.
When you graduate to an unsecured card, you may get your cash deposit back as a statement credit.
But if you switch to another card issuer, once you pay off your secured card and close the account, the cash deposit should be refunded.
What are the benefits of transitioning to an unsecured card?
A secured credit card is an effective way to build or rebuild your credit history, but you can continue to build credit by using an unsecured card, too. And once you take the steps to qualify for an unsecured credit card, you could enjoy additional benefits.
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No cash deposit required. Your card issuer will give you a credit limit based on your creditworthiness
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Higher credit limits. That $200 credit limit you started with on a secured card has the potential to rise higher with an unsecured account and responsible credit card usage
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Better rewards programs. Your unsecured card may provide you with airline miles, cash back, and/or other rewards and perks
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Potentially lower fees. Many unsecured cards have no annual fee
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Stronger long-term credit profile. Using an unsecured card and building your credit history will strengthen your ability to obtain a mortgage or car loan
FAQs
Not all of them. Some issuers will automatically perform a credit review after you've met the requirements to qualify for an unsecured credit card, which might take 6 to 12 months of responsible usage. They'll offer a graduation to unsecured status without you having to do anything.
However, some issuers may require you to make a separate application for an unsecured card.
With a secured card, your credit limit is usually equal to the amount of the cash deposit. When you transition to an unsecured card, many issuers raise your credit limit. That limit could increase further with long-term, responsible card usage.
Continue on-time payments and credit score improvement. As you build your credit history, you can apply to a different issuer for an unsecured card that requires only a fair or good credit score.
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