A secured credit card can be a stepping stone to better credit. It’s designed to help you build or rebuild your credit score by demonstrating responsible financial behavior. While secured credit cards can be powerful tools, they are often not permanent tools since these cards have lower credit limits and fewer benefits than unsecured credit cards.
You don’t need to keep a secured credit card forever, but knowing when it’s the right time to move on can help you with your goals to increase your credit score and reap the benefits of having good credit. Let’s explore how long you should keep a secured card and when it’s time to upgrade.
What is a secured credit card and how does it work?
A secured credit card requires a refundable security deposit, which typically acts as your credit limit. For example, a $300 deposit allows you to spend up to $300 on the card. These cards are commonly used by people with no credit history or those looking to repair their credit.
Unlike unsecured credit cards, which don’t require a deposit, secured cards are easier to qualify for, making them a great starting point for improving your credit. However, their benefits are often limited compared to traditional credit cards, which is why you’ll eventually want to move on once you’ve hit your credit goals.
When it comes to fees, secured credit cards may come with higher annual fees, monthly maintenance fees, and interest rates than unsecured cards. But it all depends on the type of card you get. The card_name has no annual fee and even offers cash-back rewards. So ideally, you’ll want to choose a secured credit card with little to no fees that can help you build your credit over time.
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How long does it take to build credit with a secured credit card?
Building credit with a secured card isn’t an overnight process. It can take anywhere from around six months to more than a year of consistent, on-time payments to see a noticeable impact on your credit score. But patience is key here — credit growth is a marathon, not a sprint.
Secured cards offer you a chance to establish or rebuild your credit by reporting your credit activities to the three major credit bureaus. Each month, as you use your card responsibly and pay your bills on time, you’re laying down the foundations of a solid credit history.
Your credit utilization ratio also plays a role in this process. This ratio compares your total credit card balances to your total credit limits. It’s wise to keep your utilization below 30% to show creditors that you’re managing your credit responsibly.
➤ SEE MORE:What is a good credit score?
Why keeping a secured credit card for too long can be a problem
As your credit improves, you may be tempted to hold onto your secured card if you’ve gotten into a good routine with managing it. But this could lead to extra money spent on fees and missed opportunities for unsecured credit card options with better benefits.
Most secured credit cards have low credit limit options and this is also money that you’ll need to pay upfront as a security deposit. If you’ve built enough credit to transition to an unsecured card, it might make sense to switch and save money in the long run.
Secured cards often lack rewards programs, cash-back options, travel benefits, or other perks that many unsecured cards offer. By staying with a secured card, you might delay access to unsecured cards with better terms and benefits, such as purchase price coverage and travel protections.
Knowing when to close your secured credit card
If closing your secured credit card sounds like a good idea, keep in mind that doing this may affect your credit in a few ways. Here’s what happens when you close a secured credit card. One immediate impact is the effect on your credit utilization ratio. If the secured credit card represents a significant portion of your credit limit, closing it could increase your utilization ratio, which might negatively impact your credit score.
On the flip side, closing a secured credit card can be beneficial if you’ve successfully transitioned to unsecured cards with better terms. Unsecured credit cards will often have a higher credit limits which can positively impact your credit so long as you manage your spending and pay your purchases off in full.
How to close a secured credit card
Closing your secured credit card account is a simple process and sometimes, the card issuer may even offer to transition your account to an unsecured credit card at the same time. The card_name is an example of a secured credit card that makes it easy to transition to the unsecured version of the card and get your deposit back.
But if you wish to close your card completely, start by paying off any outstanding balance to ensure your account is in good standing.
Next, contact your credit card issuer and see if they require a written confirmation of your request to close the account. Or, you can call your card issuer directly and verify your account details and verbally request to close it.
Once you’ve confirmed the account closed, the card issuer may refund your initial deposit based on the terms of your agreement. Finally, monitor your credit report and make sure the closed account is reported accurately to the credit bureaus.
➤ SEE MORE:Got your secured credit card deposit back? Here’s what to do with it
Bottom line
Secured credit cards are a valuable tool for building or repairing credit, but they’re not a lifelong solution. Once your credit has improved and you’ve established healthy financial habits, it’s time to consider moving on to an unsecured card to unlock greater benefits.
Knowing how to close your account and what happens when you close a secured credit card can help you smoothly transition to your next steps. Continue to assess your financial goals, and track your progress as you work to build credit and increase your credit score so you’ll know when it’s the best time to make an informed choice on your next credit card.
Frequently asked questions about secured credit cards
How old do you have to be to get a secured credit card?
The minimum age requirement for a secured credit card varies by issuer, but typically you must be at least 18 years old to apply. Some issuers may require the applicant to be 21 or older.
How long should I keep a secured credit card?
The length of time you should keep a secured credit card can vary depending on your individual financial goals and situation. Regularly reassess your credit needs and consider switching to an unsecured card once you’ve built enough positive credit history to qualify for one. Ultimately, the decision about how long to keep a secured credit card is up to you and what makes the most sense for your financial situation.
If I cancel my secured credit card do I get my deposit back?
Yes, you typically get your deposit back when you close a secured credit card. However, there are a few conditions to meet first. Make sure your balance is paid in full and that there are no pending charges or fees on your account. Once your account is in good standing, the card issuer should return your deposit. The timeline for receiving your deposit can vary, so check with your issuer for specific details.
