How to Change a Secured to an Unsecured Credit Card

Credit cards are classified into two types: secured and unsecured. A secured credit card is one that is backed by collateral and is mostly used by first-time credit card holders and people with bad credit. A secured credit card has lower interest rates and fees than an unsecured credit card. You can move from a secured to an unsecured card more quickly if you improve your credit score. Speak with your financial advisor or creditor, or use online resources (Nerd Wallet, Credit Karma, etc.) to find an unsecured credit card that fits your spending habits, preferably one with low interest and monthly payments.

Method 1 Converting or Replacing a Secured Card

1. Continue to use your current financial relationship. You are more likely to receive an unsecured credit card from a company that is already familiar with your credit history and has done business with you in the past. If you have a good working relationship with the company or financial institution that issued you your secured credit card, you should apply for your unsecured credit card there as well.

2. Inquire with your financial institution about the possibility of converting your card. Call or visit your financial institution to inquire about the process of converting your card from secured to unsecured. You may need to fill out some paperwork depending on the institution’s rules, so going in person may be the best option.

If you are unable to convert your card to an unsecured card, you must replace your secured card with a new unsecured card. Inform your current card issuer that you are doing so.

If you convert your card, make sure your card number stays the same.

 If you keep your card number when converting your secured card to an unsecured card, you’ll be able to smoothly transfer recurring payments onto your new unsecured card and won’t have to suffer the dip in your credit score that you would if you cancelled the secured card or opened a new card.

3. Learn about your lender’s policies. You may need to contact your credit card company or the institution where you want to obtain the unsecured card directly. Understand your lender’s policies. Different lenders have different guidelines for their credit lines. You should investigate your lender’s policies regarding the fine print of the unsecured credit card, including the card’s minimum payments, interest rates, and late fees, just as you did when opening your secured credit card. This information will assist you in determining the best unsecured credit card for you.

Investigate your bank’s or lender’s requirements for obtaining an unsecured credit card. To apply for a card change, you must be a US citizen and meet other institution-specific requirements.

Attempt to obtain the lowest possible late fees, minimum payments, and interest rate. These are usually non-negotiable, but you should inquire anyway in case your institution is more accommodating.

4. Get a fee-free card. If you have a fee-based card, you will end up paying extra just to use it (and you may even end up paying a fee if you don’t use it enough). The type of fee-free card you receive is determined by your credit score.

If your credit score is above 700, choose the best cash-back credit card — that is, the card with the lowest interest rate, the shortest payment period, and no fees.

If your score is less than 700, your options will be more limited. Department store credit cards should be fee-free, so contact a major retailer (such as Target) for more information on their credit card programme.

5. Choose a credit card that corresponds to your spending habits. When choosing your new unsecured credit card, consider how you use your credit card (or how you want to use your credit card). There are a dizzying array of cards to choose from. To choose the best credit card for you, consider your spending habits and how you typically use your credit cards.

If you occasionally carry a balance on your secured credit card, look for one with a low interest rate and APR.

If you travel frequently and have a high credit score (700 or higher), you should get a travel card that rewards you with free air miles when you spend.

6. If you are unable to convert your secured card, do not cancel it right away. Credit card cancellation lowers your credit score. If you cancel your credit card right before applying for an unsecured card, you may lower your credit score below the threshold for eligibility. A long credit history provides the new credit card issuer with more data to examine, making them feel more comfortable extending you an unsecured card.

Instead of cancelling the card, use it once a month for a small purchase and immediately pay it off. Speak with your lender about lowering your deposit.

7. You can get your security deposit back. When applying for a secured credit card, you will be required to provide a security deposit, which can range from $500 to $10,000. This money secures your credit card and gives you a credit limit. However, once you have upgraded to an unsecured credit card, you must ensure that you receive your security deposit back. Consult your financial institution or creditor on how to proceed.

If your card was issued by a bank or credit union, the money will most likely be deposited into your account. If you obtained the card directly from a credit card company, they will most likely send you a check or apply the funds to your credit card.

Your card company may give you the runaround. Maintain your tenacity and insist on receiving your deposit back.

Method 2 Deciding If It’s Time to Change Cards

1. Look for indicators that you’re ready for an unsecured credit card. If you receive credit card offers in the mail, you may be eligible for an unsecured credit card. If your card issuer raises your limits but does not require additional deposits, you may be ready for an unsecured card. Finally, the most obvious sign that you’re ready for an unsecured card is when your secured card issuer asks you if you want to switch to an unsecured card.

2. Request your free credit reports. You’ll have a better idea of whether or not you’ll be approved for an unsecured credit card if you know your credit score. This saves both your time and the time of your credit card company.

Each year, you are entitled to three credit reports, one from each of the three major credit rating agencies (Equifax, Experian, and TransUnion). To obtain your free credit reports, go to https://www.annualcreditreport.com/index.action.

To get the most accurate picture of how your credit report is changing over time, you should get one report every four months, with an equal amount of time between each report. When applying for an unsecured credit card, however, you should try to see all three credit reports right before applying to ensure their accuracy.

Because of the different criteria, the reports’ evaluations of your creditworthiness may differ slightly. Most credit card companies will only give you a credit card if your credit score on all three reports is greater than 650.

Always check your credit report for errors and report them to the credit reporting agency right away.

3. Examine your FICO score. Your FICO score is the industry standard for determining creditworthiness. Unlike free credit reports, the FICO score can only be obtained by paying a $20 fee. You’ll be a shoo-in for an unsecured credit card if you have a FICO score of 680 or higher.

You might also want to look at your VantageScore. This is a credit score provided by the three major credit rating agencies that can be used in place of your FICO score. You can check your score for free online at a variety of sites, including https://www.vantagescore.com/free.

4. Please be patient. Before you can get an unsecured credit card, you’ll probably need at least a year of good financial behaviour and careful credit-building. If your credit is particularly bad, you may have to wait 18 to 24 months before applying for an unsecured card.

Applying for a credit card too soon is a bad idea. If you apply for an unsecured credit card too frequently or too soon, you will harm your credit score and reduce your chances of switching from a secured to an unsecured card even further.

Method 3 Building Your Credit for a Card Switch

1. Make wise purchases. Make minor purchases. You can avoid financial burdens by making only a few small charges on your card. You can also use your credit card to make online purchases, hotel and travel reservations, and other purchases where paying cash is not an option.

2. Each month, pay off your credit card in full. To be eligible for an unsecured credit card, you must first establish credit and demonstrate financial responsibility. Paying off your charges as soon as possible will help you become more trustworthy in the eyes of the lending agency.

To ensure that your balance is paid each month, use a calendar app or an automatic payment plan. If you can’t pay the full amount each month, at least pay the minimum.

Understand the risks associated with secured credit debt. If you have been using your home, a vehicle, or any other asset as collateral for a credit card, falling behind on payments can result in the loss of those assets. Most individuals and families cannot afford such a loss, so make sure you understand the terms of your current secured credit loan.

3. Obtain a loan. Taking out a loan can help you build credit and increase your chances of being approved for an unsecured credit card. Buying a new or used car can be a good way to establish good credit, but any loan that requires regular payments is likely to improve your credit score (provided you make payments on time).

Co-signing a loan with someone who cannot be trusted is not a good idea. Nothing will hurt your credit more than signing with someone who is unable to back up their part of the loan repayment process if you are trying to build credit. When you cosign on a loan, make sure that bills are mailed to you so that you know when the person is making timely payments.

4. Increase your earnings. Credit card companies may believe that you do not earn enough money to qualify for a credit card. Get a second job if possible, or ask for a raise or promotion at your current job. Look around your house for items you can sell for extra money on Craigslist or eBay. Increase your income by allocating a portion of your earnings to stocks and mutual funds.

5. Don’t change jobs too frequently. If you’re constantly on the move and appear to live an unstable life, creditors are likely to view you as a risky investment. More than two or three address or workplace changes per year are likely to cause creditors to reconsider approving your unsecured line of credit. Try to find a good job and keep it.

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