How to Graduate From a Secured Credit Card

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When you have bad credit, it can feel like no one will give you a loan, even though you can’t rebuild your credit history without one. Secured credit cards can offer a way out of this conundrum because issuers typically approve nearly all applicants for these kind of cards, regardless of credit history.

But in order to open a secured credit card account, you first have to submit a refundable deposit, which typically becomes your credit limit. Naturally, many secured card users look forward to later opening a standard credit card account, and receiving their security deposit back.

Here are some important steps to take in order to graduate from a secured credit card to a standard one.

1. Make Every Payment on Time

Your payment history is the single most important factor in improving your credit, and it’s especially important for those who are using secured cards to do so. In fact, most secured card issuers promote the fact that they report your payments to all three major credit reporting agencies so that your on-time payments can improve your credit score. To help you remember to pay on time, you can activate text and email reminders, or enable automatic payments through your card issuer.

But if you miss a payment, it can be especially damaging to you if you already have a poor credit history.

2. Carry Very Little Debt

Despite submitting a security deposit, a secured credit card is still like a standard credit card in most other ways. So if you carry a balance that is a higher percentage of your credit limit (usually 30% or more), it can have a negative impact on your credit score. Instead, try to avoid interest charges by paying each month’s statement balance in full, which is a great habit to keep even after you move on to a standard, unsecured card.

3. Wait

While having a secured credit card — and using it responsibly — is an important step toward rebuilding your credit, the process is not instantaneous. Most credit card issuers will want to see at least a year’s worth of on-time payments before your credit score improves enough to move on to a standard, unsecured account.

4. Talk to Your Card Issuer

If your secured card was issued by a bank or credit union that also issues standard credit cards, it may be the first place you want to apply for an unsecured card. For example, Capital One offers a secured card with no annual fee, but it also offers an entire range of standard credit cards. In fact, some of its cards are offered to people with fair credit, which would be ideal for those graduating from a secured card.

In addition, with the BankAmericard Secured Credit Card from Bank of America, customers are told that “After 12 months, your account may be reviewed and you could qualify to have your security deposit returned while you continue to use your card.” Furthermore, the U.S. Bank informs customers of its Secured Visa® Card that “When you’ve managed all of your credit obligations responsibly and consistently for 12 months, you’ll be well on your way to a stronger credit standing, and we may be able to move you to an unsecured credit card product.”

5. Consider a Store Credit Card

One of the easiest types of unsecured credit cards to be approved for are store credit cards. If they are not part of a payment network (like Visa or MasterCard), these cards can only be used at the retailer offering them. Nevertheless, they can help your credit score when used sparingly and payments are made on time.

As you use your secured credit card responsibly over time, you may want to track your credit-building progress. There are many ways to get your credit scores for free — including through Credit.com, which offers a free credit score and an explanation of what’s affecting your scores, updated every 14 days.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

At publishing time, Capital One and U.S. Bank credit cards are offered through Credit.com product pages, and Credit.com is compensated if our users apply for and ultimately sign up for any of these cards. However, this relationship does not result in any preferential editorial treatment.