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Do you need to fix a troubled credit score? If not, do you need to build a credit history so that you can even qualify for a triple-digit FICO credit score? Applying for a secure credit card and making your monthly payments on time can help you achieve either goal. You might even qualify for a secure credit card that automatically switches to a traditional card once you’ve made enough payments on time.
Here’s a look at the best secured credit cards that evolve into traditional unsecured cards over time and how these cards can help you with your credit and credit score issues.
What is a secured credit card?
Secured credit cards work mostly like traditional cards – you use these cards to make purchases throughout the month, then pay off at least some of those purchases on or before your card expiration date. If you pay off your balance in full, you won’t owe any interest. If you pay less than your total balance, your credit card provider will charge you interest on whatever is left.
With secured cards, however, you make an initial deposit with the bank providing the card. This deposit usually becomes your credit limit. When you apply for a secure card, you can deposit $ 600 with your bank; your credit limit on that card is then $ 600, and you cannot accumulate charges totaling more than that amount.
This limits the amount you can spend, making it easier for people with damaged or limited credit history to qualify for secure cards. Card providers take less risk by setting this limit; if you don’t pay your credit card bill, the bank may simply take the money owed to it from your deposit.
For this reason, secured cards are a good choice for consumers who have low credit scores or who don’t have a long enough credit history to have generated a good credit score (or any score at all. ). As long as you make your monthly payments to your secured credit card on time, you will gradually build a strong credit history and a strong credit rating. When your score is high enough, you can apply for traditional unsecured credit cards.
Some secured credit cards automatically switch to traditional cards once you’ve made enough monthly payments on time. The number of payments varies by card issuer, but many secure cards will switch to unsecured versions if you make at least nine to 12 on-time payments in a row.
How do secured cards differ from unsecured credit cards?
You may be wondering “What is an unsecured credit card?” The main difference between secured and unsecured credit cards is the deposit required by secured cards. Traditional, unsecured credit cards do not require cardholders to make deposits with their issuers.
Credit limits on unsecured cards are not tied to a deposit but rather are determined by the cardholder’s credit. Cardholders with higher credit scores will be eligible for higher credit limits. It is not unusual for consumers with the highest FICO credit scores – usually 740 or more – to qualify for credit limits of $ 20,000 or more with their unsecured credit cards.
Unsecured credit cards also tend to come with more generous rewards programs. Many traditional credit cards allow cardholders to earn reward points, free miles, or cash back, while few secure cards offer rewards programs. This advantage, along with higher credit limits, is the reason most consumers prefer unsecured credit cards.
Best secure cards that switch to unsecured
Which secure cards automatically change to unsecured? Here’s a look at some of Bankrate’s top picks.
Discover it® secure credit card
The Discover it secure credit card is one of the few secure cards to offer a rewards program. You’ll earn 2% cash back at gas stations and restaurants up to $ 1,000 in combined purchases each quarter. You’ll also earn 1% unlimited cash back on all other purchases.
The card does not charge any annual fees and allows you to open an account with a deposit of as little as $ 200. After eight months, Discover will review your payment history and credit behavior to determine if you can switch to an unsecured Discover credit card.
BankAmericard® secure credit card
Although it is a fairly basic card, the BankAmericard secure credit card offers many advantages. It doesn’t charge an annual fee and you only need a deposit of $ 300 to open an account. Plus, you can deposit up to $ 4,900 with this card, a high maximum deposit compared to other secure cards.
On its site, Bank of America says it will periodically review your account to determine if you can switch to an unsecured Bank of America credit card.
Capital One Platinum Secured Credit Card
You don’t need a lot of money to open an account with the Capital One Platinum Secure Credit Card with no annual fee. In fact, Capital One requires a deposit as low as $ 49. Keep in mind that your initial credit limit can also be low, more specifically, as low as $ 200. After six months, Capital One says it will begin reviewing your payment and account history to see if you qualify for a higher credit limit or an unsecured Capital One credit card.
Citi® Secured Mastercard®
While you need a minimum deposit of $ 200 to qualify for the Citi Secured Mastercard, you do have some flexibility. Depending on the amount you deposit, you may qualify for a line of credit of up to $ 2,500. Like the other cards on this list, the Citi Secured Mastercard does not charge an annual fee. After 18 months of card possession, Citi will review your account to determine if you are eligible for a refund of your security deposit and can switch to an unsecured Citi credit card.
How to Upgrade If Your Secure Card Won’t Do It Automatically
Some secure credit cards never switch to an unsecured version. In these cases, you will have to switch to a traditional credit card yourself.
First, you will need to establish a credit score high enough to qualify for a traditional card. You will generally need a FICO score of 680 or higher to qualify for traditional credit cards that also offer rewards programs. Fortunately, arriving at this score is not complicated.
The most important step is to pay your bills on time. For example, if you’ve been paying off your mortgage, credit card bills, or student loans for 30 days or more, your FICO credit score could drop by 100 points or more. On the other hand, paying your bills on time can help your score increase steadily.
Also, be sure to keep your credit card debt low or nonexistent. Having too much debt from month to month can lower your credit score. Always try to pay off as much as possible on each due date, knowing that it’s best to pay off your entire balance on or before the due date. This will not only improve your credit score, but also prevent you from paying additional interest on your credit card debt.
Once your score is high enough, apply for a traditional credit card. Depending on your score and other factors, such as your monthly income, you may be eligible for an unsecured card with a higher credit limit and rewards program.
You will need to decide whether to close your secure card or keep the account open, but be aware that closing it could hurt your credit score. By closing an active credit card account, you will have less available credit, which will potentially increase your credit utilization rate.
This does not mean that you should always keep your secure credit card account open. If you think you might be tempted to go into debt on the card and not pay it off in full, it may make more sense to close the account and remove the temptation.
How To Increase Your Chances Of Qualifying For An Unsecured Credit Card
The best way to qualify for an unsecured credit card is to practice good spending and bill paying habits. If you pay your bills on time every month, including paying off your secure card, you will gradually build a credit score or improve a weak spot. You will also improve your credit score by paying off any existing debt.
The time it takes to establish a credit score high enough to qualify for an unsecured card varies. If your score is low, it may take months of on-time payments to increase your score to over 680, which is likely required to qualify for an unsecured credit card.
The bottom line
Secured credit cards are a smart way to build your credit history so that you can qualify for an unsecured credit card in the future, one with a higher credit limit and valuable rewards. The key is to make your monthly payments on time and reduce your debt load so that your secure card will someday switch to an unsecured version.
All BankAmericard® Secure Credit Card information has been independently collected by Bankrate and has not been reviewed or approved by the issuer.