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 6 lenders of 2018!
|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 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% 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 Month/Day/Year, 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 08/21/18. 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 ourstudent 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 Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 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.
5 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 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|