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!
Interested in refinancing student loans?Here are the top 8 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.45% APR (with Auto Pay) to 6.99% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.89% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of November 21, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 11/21/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Figure.
Figure’s Student Refinance Loan is a private loan. If you refinance federal loans, you forfeit certain flexible repayment options associated with those loans. If you expect to incur financial hardship that would impact your ability to repay, you should consider federal consolidation alternatives.
4 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
ANNUAL PERCENTAGE RATE (“APR”)
There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.
For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
ELIGIBILITY & ELIGIBLE LOANS
Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).
Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.
All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.
For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.
The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.
The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.
POSTPONING OR REDUCING PAYMENTS
After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.
We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.
We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.
If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of November 8, 2019 and is subject to change.
5 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers.
6 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 1.76% effective November 10, 2019.
7 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 12/07/2019 student loan refinancing rates range from 1.90% to 8.59% Variable APR with AutoPay and 3.49% to 7.75% Fixed APR with AutoPay.
8 Important Disclosures for College Ave.
College Ave Disclosures
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
1College Ave Refi Education loans are not currently available to residents of Maine.
2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.
4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 12/1/2019. Variable interest rates may increase after consummation.
|1.99% – 6.89%1||Undergrad & Graduate|
|2.31% – 7.36%2||Undergrad & Graduate|
|2.21% – 6.21%3||Undergrad & Graduate|
|1.99% – 6.65%4||Undergrad & Graduate|
|2.43% – 7.60%5||Undergrad & Graduate|
|1.85% – 6.13%6||Undergrad & Graduate|
|1.90% – 8.59%7||Undergrad & Graduate|
|2.74% – 6.25%8||Undergrad & Graduate|