How Long Does It Take for a Secured Card To Become Unsecured?

Introduction

If you have a limited credit history or a low credit score, a secured credit card can be an essential resource. It’s like a tool that can help you build credit by demonstrating responsible credit use over time. Think of it like a credit card with training wheels.

But once you start using one, you may find yourself wondering when you can graduate to an unsecured credit card and enjoy the associated perks. That might include a larger credit limit or better benefits, among other things.

It could take six to 18 months or more before you’ve established enough of a credit history to be approved for unsecured credit, but that timeline can vary. And your secured card may or may not “become” unsecured at the end of that road.

Let’s look at the various factors affecting your ability to get an unsecured credit card, and how you might be able to expedite the process.

Understanding Secured Credit Cards

A secured credit card is similar to a traditional credit card, with one significant difference — you need to put down a security deposit as collateral. This deposit serves as a safeguard for the lender in case you default on your account.

In most cases, your credit limit matches the amount of your deposit. So if you put down a $300 deposit, your credit limit will be set at $300. The lender holds your deposit, which will only be used if you fail to make payments.

Secured cards are often recommended for people early in the credit journey — or with financial challenges in their past — as a reliable means to build or establish credit. After all, if you don’t already have a good track record of credit, you may not easily qualify for new credit. That leaves you in a catch-22 scenario where you have no credit account to prove your amazing credit-handling skills.

Secured vs Unsecured Credit Card: What’s the Difference?

An unsecured credit card is your standard, traditional credit card. It’s similar to a secured card in a lot of ways, but they do have a few key differences.

• Collateral: Secured credit cards require a monetary deposit as collateral, while unsecured cards don’t. 

• Approval criteria: If you have a limited or negative credit history, secured credit cards are easier to qualify for because the security deposit reduces risk for the lender. Unsecured credit cards typically require a strong credit history because the lender is depending on your track record of paying. 

• Rewards and benefits: Unsecured credit cards often come with a variety of perks and benefits, like cash back rewards, purchase protection and travel insurance. In contrast, secured credit cards often have limited or no rewards programs and fewer benefits.

These differences are important to understand before applying for a secured card or upgrading to an unsecured one.

How Secured Credit Cards Work 

If credit is a journey, secured cards are like stepping stones on the way to traditional credit. They’re designed to help people build a solid credit history when they don’t have easy access to other means.

This matters because you need that credit history to qualify for standard credit cards as well as personal loans, private student loans, auto loans and mortgages.

In a nutshell, here’s how you can put a secured credit card to work building your credit.

1. Apply for a secured card. Even a low credit limit can help build credit, and you may not have to go through a credit check.

2. Leave a deposit with the creditor, which is usually equal to the credit limit.

3. Use your secured card for purchases up to the limit of the card — but bonus points if you only use a small portion. The amount you use in relation to your credit limit is called your credit utilization ratio, and lower is usually better for your credit score.

4. Pay your bill on time, each and every month. If you can always pay off the full balance, even better.

5. Check your credit reports to make sure the payments are being properly reported to the credit bureaus. You can get your reports for free once a week at AnnualCreditReport.com.

Committing to this process should eventually put you in a good place to qualify for a standard credit card.

How To Get a Secured Credit Card

If you’re concerned about step one, you’re not alone. But there’s no need to worry, because the process of getting a secured credit card is pretty straightforward.

Having said that, a bit of planning can help you start with a solid foundation.

• Check your credit score: Instead of assuming, make sure your circumstances call for getting a secured credit card. If you’re at least in the “fair” credit score range of 580 to 669 on the FICO scale, you may qualify for an unsecured credit card instead. 

• Compare credit card options: Once you know your credit score, you’ll have a better idea of what you might qualify for. You can find unsecured credit cards specifically made for rebuilding credit, and most will let you see if you pre-qualify before jumping in to an application. That gives you a good idea of approval, so you can compare these alongside the various secured card options. 

• Apply for a secured card: If pre-qualification for an unsecured card says you’ll likely be declined, or your credit history is too thin, a secured credit card may still be your best bet. Choose the one that aligns the most with your needs and preferences, factoring in the interest rates, credit limits, benefits, and any annual fees. Then submit an application for the winner of this analysis. 

• Put down the deposit: After you’re approved for the card, you’ll need to provide the collateral. And the amount of your deposit will typically determine your credit limit.

How Much Is the Deposit for a Secured Credit Card?

There’s no hard-and-fast rule, but most creditors will set some parameters around secured card deposits.

That could include a minimum deposit or a predefined range of options. For example, you might see a requirement for a $200 minimum or a range of $100 to $500. Some secured cards even let you put down thousands of dollars.

The collateral amount is often the same as the credit limit, but not always. Having the secured card is more important than the credit limit though, so if $200 feels doable but you can’t spare $500, the lower amount can still accomplish your goal.

How Can a Secured Credit Card Help Rebuild My Credit History?

There’s one thing that has to be in place before a secured card can help you build credit. And that’s having account activity reported to one or more of the three major credit bureaus.

Nearly all secured cards should do this, because building credit is one of the main purposes of these cards. But it’s worth double-checking before applying.

The caveat here is that you can’t pick and choose what info gets reported, and it will likely include both positive and negative activity.

Payment history is the most important factor in calculating your credit score, and that goes both ways. So paying on time, every time, is one of the best things you can do for your score. And missing payments is one of the worst.

Do’s For Using a Secured Credit Card

Follow these tips for the best results with your secured card.

1. Make every payment on time and pay off the whole balance each month if possible. You only need to pay the minimum by the due date for it to be considered on time — but clearing off your balance looks better to lenders, keeps your utilization low, and saves you money in interest charges. Enrolling in AutoPay for at least the minimum can make this process easier.

2. Set up notifications and alerts through your online account or mobile app. You’ll usually be able to choose whether the messages come through email, text message or push notification. And you can typically set them to notify you about payment due dates, high balances, suspicious activity, or specific transaction types.

3. Keep your balance below your limit, preferably using just 30% or less of your available credit. This credit utilization level is often quoted as being the recommended max for strong credit scores.

4. Check your credit score and credit reports regularly so you can monitor what’s happening with your profile. Make sure your payment history, accounts, and other key info is accurate, and submit a dispute if you find mistakes.

5. Stay on top of all your bills. Your secured credit card is just one piece of your credit profile. It’s important, but so are your other accounts and debts, like auto loans and student loans. In fact, paying rent and utility bills on time is important too. Those types of accounts aren’t always reported to the credit bureaus, but some third-party services like Experian Boost can incorporate them into your credit profile.

Don’ts For Using a Secured Credit Card

On the flip side of the equation, here’s a few things to avoid doing with your secured card.

1. Don’t pay late or skip a month’s payment on any of your bills. You need to pay at least the minimum due on time, every time, in order to build positive credit history. So if money’s tight, at least pay all your minimums, and catch up with additional payments when you can.

2. Don’t spend excessively because you’re not trying to build debt — you’re trying to build credit. Remember that experts recommend keeping your credit utilization at 30% or less of your credit line. And the whole purpose of the secured card is to establish positive payment history, so paying off what you purchase every month is the best strategy.

3. Don’t go over your credit limit. In many cases, your purchases will just get declined if you try to go over the limit. But some cards might charge you an over-limit penalty or implement a penalty APR instead. If you’re at the point where you’re not only maxing out your card but going over, it’s time to reassess your budget and approach.

How To Graduate From a Secured to an Unsecured Credit Card

Establishing a good financial track record and seeing your credit score increase can be exciting. But what about the next step? Here’s how to work toward that unsecured card.

Build your credit history

One of a secured card’s main purposes is to help you build your credit history. So once you have that positive payment history on the books long enough to prove a pattern, you may become eligible for an unsecured card.

This strategy includes making all monthly payments on time and keeping your credit utilization low to show lenders how well you can manage credit.

Improve your credit score

Good credit history should lead to a better credit score, which is the main factor in determining your eligibility for an unsecured card. Lenders often prefer to see a credit score of around 650 or higher before they consider upgrading a secured credit card to an unsecured one.

If you start with a lower credit score, it may take longer for you to reach this threshold. But regardless of your starting point, you should be able to gradually improve your credit by making timely payments and maintaining low credit utilization. 

What You Can Do To Speed Up the Process

While six to 18 months (or more) may seem like a long time to wait before you’ve built the history to be approved for an unsecured card, you can speed up the process by taking a few specific steps.

• Monitor your credit score: Checking your credit score regularly lets you pinpoint areas of improvement. Some credit card issuers and banks offer at least one version of your credit score for free. 

• Ask for a credit line increase: If you’ve been making on-time payments and have a good credit standing, you can ask your lender for a credit limit increase. This shows responsible credit management and may help speed up your upgrade, although it might require an additional deposit for a secured card. 

• Apply for another credit card: Once you’ve established that positive payment history, you might want to consider applying for a traditional credit card. Managing multiple lines of credit well can improve your overall credit profile faster.

Just be cautious when taking these steps. Applying for new unsecured credit typically requires a hard inquiry or pull, which can lower your credit score a bit. Requesting several credit accounts at the same time will multiply that impact and may negatively impact your credit score. But seeing if you pre-qualify is a soft inquiry which gives you a good idea of approval possibilities without risking unnecessary hard pulls.

Benefits of an Unsecured Credit Card

Successfully upgrading or transitioning from your secured card to an unsecured one might come with some additional benefits.

No collateral required

The most obvious benefit of an unsecured card is that you no longer have to put down a deposit as collateral. This means you can use the credit card without having to tie up your own funds for the privilege.

Higher credit limit

Your credit line isn’t tied to the deposit when you have an unsecured card, which means it may come with a higher limit. This can provide more purchasing power and flexibility for managing your finances. But if you don’t want to find yourself back at the bottom of the credit scale, it’s important to keep up those positive habits — including a conservative credit utilization.

Potential for better rewards

Many secured cards have limited rewards programs or none at all. But with an unsecured card, you can often enjoy better perks, including cash back rewards, travel points or discounts on purchases.

Improved credit score

It’s not guaranteed, but you might be able to further enhance your credit score by increasing your credit limit on an unsecured card. Of course, if you fill up that new limit, you might achieve the opposite effect, plus a lot more debt. However, sticking to a low credit utilization ratio and continuing to pay on time can help you move forward.

4 Signs You’re Ready To Graduate to an Unsecured Credit Card

If you’re looking for a sign that it’s time to move up in the credit world, here’s four of them. And they can occur individually, sequentially, or all together.

1. You prove that you can manage credit strategically and responsibly over time.       

2. Your credit score consistently improves for several months in a row.       

3. Your financial institution increases the credit limit on your secured card without requiring additional deposits.

4. Your secured card creditor notifies you that you’re qualified to graduate.

FAQs About Secured Credit Cards

Is it better to have a secured credit card or an unsecured one?

Most people consider an unsecured credit card “better” because it doesn’t require collateral and it may come with more robust benefits and a higher credit line. However, when it comes to building credit, “better” is whichever tool you can get. And for many people with damaged credit, that’s a secured card.

Can I graduate from a secured card to an unsecured card?

Yes, many creditors will give you the opportunity to graduate to an unsecured card after you’ve established an adequate credit history with the secured card. Others don’t have a seamless transition process in place but will let you apply for one of their unsecured cards after you’ve built enough of a track record with the secured one.

You can also look for unsecured credit cards from other creditors. Choosing one that matches your current credit profile and seeing if you pre-qualify before applying can prevent unnecessary hard pulls.

Do all credit card issuers allow the conversion from a secured to unsecured card?

No. Some creditors have a graduation track in place to let you seamlessly move up to an unsecured credit card. But if yours doesn’t, you simply close the secured card and apply for an unsecured card, using your new and improved credit score to help you qualify.

Do you ever get your money back from a secured credit card?

Yes, most creditors will refund your deposit when you close a secured credit card or transition to an unsecured card. Sometimes you’ll also receive interest for the time the bank held your money.

Does unsecuring impact my credit scores?

Closing a secured card and moving to an unsecured card can affect your credit scores in several ways, both positive and negative. If the closed account was your oldest, it may shorten the length of your credit history and the average age of your accounts — and that can lower your score. But if the new card has a higher limit and you still keep a low credit utilization, you may find your score going up.

Does a secured credit card have an annual fee?

Annual fees are set by the creditor. Some secured cards come with an annual fee and others don’t. But it’s more common to find a secured card with no annual fee than an unsecured card, unless you already have excellent credit.

Are unsecured cards less secure?

Despite the name, unsecured cards are just as secure as secured cards. The “secured” in the name refers to the security deposit used as collateral rather than the anti-fraud security features.

Bottom Line

It might take some time and effort, but transitioning from a secured card to an unsecured one can greatly enhance your credit profile and open up more financial opportunities.

If you’re looking for a secured card that can help you build your credit while offering interest on your deposit and cash back rewards on everyday purchases, see if you pre-qualify for the Credit One Bank secured card.