Should You Close Your Secured Credit Card?
If you’re thinking about closing your secured credit card, chances are you’ve improved your credit. But before you close your card, it’s important to assess how that might affect your credit score.
Fifteen percent of your credit score depends on the length of your credit history. Whether closing your secured credit card has an impact on your score depends on the age of your other credit accounts. If your secured credit card account is significantly older than your other accounts, closing it could lower the average age of your accounts and hurt your credit score.
Closing your secured credit may also affect your credit utilization ratio. Secured credit cards usually have low credit lines. But closing the account could lower the amount of available credit you have overall and raise your debt-to-credit ratio. Having a credit utilization ratio above 30% could lower your credit score.
If you believe that closing your secured credit card won’t have a big impact on your credit score, the good news is that the positive credit history that you’ve established with the card can remain on your credit report for as many as 10 years.
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Closing Your Secured Credit Card
If you’re ready to close your secured credit card account, you can call the number on the back of the card and ask a representative to close the account. During the conversation, it’s a good idea to make note of who you spoke with and what their instructions were. Just keep in mind that if you’re carrying a balance, it’s best to pay it in full and get rid of your credit card debt before canceling the card.
Also, don’t forget to ask the representative about your security deposit. It’s a good idea to confirm the amount you’ll be getting back and find out how long it will take to receive the deposit. Receiving your security deposit could take between 60 and 120 days. But that may vary depending on your credit card company.
Once you’ve received your deposit, it’s best to throw away your canceled card to avoid using it or having someone steal it.
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With a secured credit card, you put down a security deposit upfront thats equal to your credit limit (typically around $200), and your activity on that card is reported to the credit bureaus. For this reason, secured cards provide you with an opportunity to make consistent on-time payments and improve your credit score over time.
But eventually, youll want to move on from your secured card to one that doesnt require a deposit (also known as an unsecured credit card). When this occurs, there are two basic choices: Either apply for a completely new unsecured card or simply upgrade your secured card to an unsecured card with the same issuer.
Both pathways could have a potential impact on your credit score. And no matter which one you choose, youll want to make sure you know how you get your deposit back.
Below, Select breaks down how to successfully upgrade from a secured credit card to an unsecured card and the two ways you can do it. Plus, we reveal the only time you should ever close your secured credit card for good.
Get a higher limit with an unsecured card
Unsecured credit cards, also called traditional credit cards, are better for long-term use than secured cards because they dont require a deposit and they typically offer a higher line of credit. You can also earn rewards on purchases like groceries and gas, earn cash back and travel for free. Unsecured cards also come with additional perks for cardholders, such as travel insurance and purchase protection.
After using your secured card consistently and paying your bills on-time and in full, youll know its time to move on to an unsecured card when your credit score improves and youre ready for a higher limit. To help you decide which path to take, we review both scenarios below.
Option 1: Upgrade to an unsecured card with the same issuer
Graduating to an unsecured credit card with your secured card issuer is the easiest option and wont require you to submit a new application (though your issuer may still run a credit check). You may even be able to qualify for a stronger offer on an unsecured card by going through your current issuer versus applying through a different issuer who doesnt already have a relationship with you. Keep in mind that card issuers want to retain you as a customer.
How to do it: Contact the provider who issued you your secured credit card and discuss your “”graduated unsecured credit card”” options. Be sure to make note of your on-time payment history as well as any improvement in your credit score to help build your case for the best offer.
The rules vary by issuer when seeing what credit cards you qualify for, but it doesnt hurt to do some research beforehand to know what credit cards your issuer offers in general. For example, if you had something like the Citi® Secured Mastercard® you might want to upgrade to the Citi® Diamond Preferred® Card to take advantage of zero interest on new purchases for 12 months from date of account opening (after, 13.74% to 23.74%% variable APR) and no annual fee.
The impact on your credit score: Even when you upgrade to an unsecured credit card with your current issuer and maintain the same line of credit, they may still perform a credit check, which results in a hard inquiry and temporarily dings your credit score. Its still worth doing, however, and your score will recover once you start charging purchases and making on-time payments on your new card.
Since your credit history plays into your credit score calculation, avoid lowering the average age of your accounts when you upgrade. You can do this by asking your issuer if they can carry over the secured card account information, such as the opening date and account number, to your new unsecured card.
Explore the reasons why closing a secured credit card may impact your credit scores
May 13, 2021 |8 min read
Closing any credit card could hurt your credit scores if that card is reported to the credit bureaus. Thatâs because closing a card can affect factors that go into calculating your scores. Secured credit cards are no different.
Read on to find out how closing a secured credit card could hurt your credit and learn ways you might reduce or avoid the impact.
How Long Does It Take to Build Credit With a Secured Card?
A secured credit card can help you build credit if you have a limited credit history or a low credit score. Either of those factors may make it difficult to qualify for a standard, unsecured credit card. When you apply for a secured card, you make a deposit to guarantee your credit line. This lowers the lenders risk, because they can use your deposit to cover what you owe if youre unable to make payments.
You use a secured card the same way you do an unsecured card, purchasing goods and services on the account and making payments each month. If youre applying for a secured card, check to see that the card issuer reports your payment activity to one or more of the consumer credit bureaus (Experian, TransUnion and Equifax). The The OpenSky® Secured Visa® Credit Card, for example, reports payments to all three credit bureaus, helping you build credit across all your credit reports. Lenders will use both your credit report and credit score to evaluate your future credit and loan applications. Payment history is the most important factor in your credit score, so having a history of on-time payments on your secured card can help you improve your credit score and secure future loans or credit cards.
Developing a strong credit history with your secured card can help you qualify for unsecured credit cards that may have higher credit limits as well as more features and benefits. Opening an account with a higher credit limit can also improve your credit utilization, as long as you keep your balance low. Thats helpful, because credit utilization is one of the biggest factors in your credit scores.
Even with a secured card, theres really no quick fix to building or repairing credit. The goal with a secured card is to establish a record of on-time payments and keep your balance low. As you do so, youre likely to see your credit improve.
Whatever your credit goals are—and they look different for everyone—one of the best things you can do is monitor your report and score regularly. Experians free credit monitoring service gives you access to your Experian report and FICO® Score☉ so you can see where you stand. Youll also get to see the top factors influencing your score, which will give you insights into where you can improve.
Should I Close a Secured Credit Card After Building Credit?
Once youve raised your credit score, your instinct might be to close the secured credit card account. After all, it served its purpose so its time to move on, right? Not so fast.
Some secured credit cards, such as the Merrick Bank Double Your Line® Secured Visa® Card, may increase your credit line after a certain amount of time, potentially solving one issue with your card. Other issuers may offer an automatic upgrade to an unsecured credit card if you make a certain number of payments on time. In this case, your deposit will be refunded to you and youll be able to start using your new, unsecured card.
If that hasnt happened and youre eager to transition to an unsecured card, you could try applying for an unsecured card to see if you can qualify. If you cant, you may want to hang on to the secured card and continue to work on improving your credit score, then apply for a different card down the road.
Your total available credit also factors into your score as it relates to your credit utilization, so you may want to keep the credit line open to hold on to that available credit, even if you end up opening an unsecured account.
Youll also want to review your account balance and the terms and fees. If your secured credit card doesnt have an annual fee, and youre not incurring late fees on overdue payments, then it doesnt cost you anything to keep the card. But if you are paying an annual fee, you may want to consider a different card that doesnt charge a fee.
Look, too, at how much money is tied up in the account. Do you still owe several hundred dollars on it? If so, youll need to pay that off before you can close the card.
Youll likely benefit from keeping the account open if you plan to apply for a large loan in the near future as well. Making moves that could significantly affect your score right before applying can make lenders wary.