For a lot of consumers working to rebuild their credit, a secured credit card offers an opportunity to qualify for a credit card and establish a solid credit history going forward. However, secured credit cards are not without drawbacks. For example, they always require a security deposit (which is refundable) but is held by the credit card issuer while your account is open. These security deposits rarely earn interest and to top things off, almost all secured cards charge an annual fee. Some secured cards go so far as to charge a monthly fee as well. Finally, these cards seldom offer meaningful perks or benefits to cardholders.
At some point, secured card users are going to want to upgrade a secured credit card to a standard credit card (with the accompanying perks). Here’s what you can do to get there.
1) Pay Your Bills On Time
Establishing a strong payment history is the most important way to rebuild your credit. Making timely payments each and every month indicates to creditors that you can responsibly handle credit and understand the importance of never making a late payment (or missing a payment altogether). One positive aspect of secured credit cards is that they do report your payment history to the major credit bureaus.
2) Pay Your Entire Balance Due Each Month
The importance of making timely payments can’t be overstressed. But it’s also important to stay out of debt. Even though a secured card requires a deposit, any balance that you carry still shows up as debt on your credit report. Paying off your balance each month not only helps your credit score but also saves you interest charges.
3) Keep Track Of Your Progress
Many credit card issuers (even for secured cards) include a free FICO score online to cardholders as well as on monthly statements. You are also entitled to a free copy of your credit report from each of the three main credit reporting bureaus (TransUnion, Experian, and Equifax) once a year. Seeing the results of your efforts can be great motivation to stay the course.
4) Give Yourself A Year
Generally secured credit card users will need at least a year’s worth of timely payments and responsible usage of the card in order to improve their credit score enough to qualify for a standard credit card. Remember this also means a year of not taking on additional debt. Before your secured credit card comes up for renewal take time to look for a standard card to apply for.
5) Contact Your Secured Card Issuer
If your secured card issuer also offers standard credit cards it’s definitely worth getting in touch with them about the possibility of graduating to a non-secured card. Banks normally like to keep customers whose accounts are in good-standing so it makes sense to contact them when you’re ready to switch cards.
6) Apply For Cards For Which You Should Qualify
There’s really no point in applying for high-end rewards credit cards which require excellent credit. Instead, focus on cards which are offered to people with fair or average credit. As you slowly rebuild your credit history you should also, over time, begin to qualify for credit cards with better terms and conditions and which offer more rewards.