How to Graduate From a Secured Card to a ‘Real’ Credit Card

Although a secured card can help you rebuild your credit, your financial goal is graduating to an unsecured ‘real’ credit card.

Wondering how to transition from a secured to an unsecured credit card? This guide will walk you through the process and help you improve your credit score with confidence.

Secured vs. unsecured credit card: What’s the difference?

What is the difference between secured and unsecured cards? Here’s a quick breakdown of each:

Secured credit cards:

  • Need a cash deposit
  • Typically offer a credit limit equal to the cash deposit
  • May charge higher fees than unsecured credit cards
  • Sometimes don’t report to the credit bureaus

Unsecured credit cards:

  • Don’t need a cash deposit
  • Offer various credit limits depending on your credit
  •  Always report to the credit bureaus
  • May charge lower fees than secured credit cards depending on your credit

Go from secured to unsecured credit cards in 6 steps

1. Choose your secured card carefully

When shopping around for a secured card, ask yourself the following questions:

Can I upgrade my current secured card to an unsecured card?

Not all secured credit cards can be upgraded to unsecured credit cards. So be sure you read the fine print before you apply. If it’s not clear, then call customer service and ask.

A secured card that doesn’t upgrade can still be helpful. Once you use it to build your credit, you can simply apply for a regular credit card separately.

How is a secured vs unsecured credit card reported to the credit bureaus?

The number one reason for getting a secured card should be building your credit. That won’t happen if the credit card issuer isn’t reporting your activity to the credit bureaus, so only apply for one that does.

Another thing you may want to look at is whether the card gets reported as “secured” or “unsecured.” How much does it matter?

“If you plan to apply for more credit, then obviously, it would be better if the secured card was reported as ‘unsecured’,” writes credit card expert Beverly Harzog. “A lender may or may not be spooked after seeing a secured card on your report.”

“But if your goal is to rebuild your credit and improve your FICO score, then I wouldn’t spend a lot of time worrying about how it’s reported,” she adds.

What are the fees?

Look at annual fees, application fees, interest fees, late payment fees, and cash advance fees.

When looking at interest fees, note how they may vary by transaction type. They may vary if it’s a regular purchase, cash advance, balance transfer, or foreign transaction.

What kind of credit do you need to qualify?

Just because it’s a secured credit card doesn’t mean they won’t check your credit score. So make sure you pay attention to credit requirements.

2. Prove your creditworthiness

When it comes time to graduate to an unsecured credit card, your credit card issuer is going to base its decision on your credit history. Here’s how to build an excellent credit history:

Make charges to the card regularly

The only way to prove you can handle credit is to use your credit. The trick is making sure you’re not charging things you don’t need or can’t afford.

To be on the safe side, try limiting your secured card charges to recurring bills that you have to pay anyway, like utilities, cell phone, or gas.

Don’t use more than 30 percent of your available credit at a time

The benefit here is two-fold. One, it helps keep your credit utilization ratio in check. Two, it significantly reduces the chance that you’ll charge up more than you can afford to pay back every month.

For example, if you use $90 of a $300 secured card limit, don’t charge anything else until you pay down the balance.

Pay the full balance on time, every time

You won’t get into trouble with your credit card issuer for making only minimum payments. In fact, they’d probably prefer it, since that’s how they earn interest fees.

However, it’s in your best interest to return the balance to zero every month. Thanks to credit card grace periods, you’ll avoid interest fees. Plus, you’ll avoid carrying debt that could damage your credit score in the long run.

But, if you get in a tight spot and just don’t have the cash to pay the full balance by your due date, pay whatever you can. Carrying a balance into the next month can be costly. Yet, it’s preferable to the double-whammy alternative: a late payment fee and a ding in your credit score.

Keep the rest of your credit in good shape

Your credit card issuer is going to look at more than just your payment history on the secured card you have with them. They’re going to look at your credit score to see how you handle credit overall.

So be sure to apply the same guiding principle to all of your credit lines – paying down debt with on-time payments.

3. Wait 12 months before asking for the upgrade

They likely won’t consider it any sooner anyway. Plus, this provides a nice chunk of time to prove to your credit card issuer that you are a responsible borrower.

Ideally, over 12 consecutive months you would show that:

  • You’ve been using the card
  • You’ve been returning the balance to zero every month
  • You’ve been making payments on time, every time

Twelve months is also plenty of time to build the kind of credit score you’ll need to qualify for an upgrade from a secured to an unsecured credit card.

4. Ask for the upgrade

Some credit card issuers will graduate you to an unsecured credit card automatically. If yours doesn’t, pick up the phone and ask for it.

5. Apply for another card if necessary

If your credit card issuer will not graduate your secured card, consider applying for an unsecured credit card elsewhere. Just be sure you only apply for credit cards for which you qualify.

Once you are approved for the unsecured credit card, call up your secured credit card issuer and ask again for the upgrade. If they refuse, tell them you’ve been approved for an unsecured credit card with another issuer.

But If they still won’t upgrade you, tell them you’re going to cancel the card altogether. And if they agree to upgrade you then, great. If not, cancel the card and walk away.

Usually, it’s not recommended that you close credit cards since doing so affects your credit utilization ratio. In this case, however, you have the new unsecured card’s available credit to take the secured card’s place.

6. Get your deposit back

Whether you get the upgrade or cancel the card, make sure you get your deposit back. If you’re asking for an upgrade, your card should be in good standing. There’s no reason you shouldn’t receive your deposit back in full then.

Now that you understand secured vs unsecured credit card offers, check out this list of credit cards and make the plunge. Just be sure to look for “secured’ in the title and you’re good to go!

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Published in Credit Cards, Credit Score, Improve Credit Score

  • Thanks for sharing this information. We all need to understand how all of this stuff affects us when it comes to our personal finances. The main thing to do when using your card is to make sure you pay on time, pay it off in full each month, and stay under 25% of the cards limit each month as well. But if you can do that then you should build a strong credit score, pay no interest and possibly earn a little cash back.