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Don't rush to close your secured card

It adds to your available credit, which is good

By  |  Published: June 28, 2017

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question Dear Opening Credits,
I just have a question, because I am very confused on what to do. I opened a secured credit card through Capital One with a $200 credit limit. I have had it since February. Today I just applied for an unsecured Capital One credit card and was approved for a $300 credit limit. Should I cancel my secured card? – Ciera

Answer

Dear Ciera,
Well done! To qualify for an unsecured credit card, you must have been using that secured card in just the right way by making small charges and paying on time. When a stellar payment history appears on a credit report, it shows you understand how to charge without getting in over your head. The more information like this on your reports, the higher your credit rating will be. The result is you will be eligible for other, better credit cards and loans.

So what should you do with the secured card now that you have the unsecured card? Keep it! There are at least five good reasons to hang onto both cards. Multiple credit cards will:

  1. Give you more room to borrow.
    It doesn’t take much to reach the top of a $300 credit line. As a limit, it’s pretty limiting! So now that you have a combined $500 to charge, you’ve significantly expanded your spending capability. If you want to treat a friend to a fancy dinner and a concert by paying with one of the cards, you probably can. 
  2. Make it easier to stay within a safe credit utilization ratio.
    FICO, VantageScore and other credit scoring systems factor in the amount you can borrow with the cards and compare it to how much you owe. For scoring purposes, it’s important for revolving balances to be well below the limit on each card as well as what you can charge in total, with no debt being best.
  3. Raise your credit scores further.
    Having a few accounts that are active and perfectly managed is another boon for your credit scores. Picture it as a juggler tossing one ball in the air. Nice, but not “wow” worthy. Two or more shows more skill. So, if you can juggle a couple of cards without dropping any (by racking up debt or missing payments), you’re proving how talented you really are with credit.
  4. Protect yourself in case one card is lost, stolen or just doesn’t work.
    Mistakes happen. For example, there may come a time when you space out and leave a credit card at a register or it goes through the wash and gets mangled. In such cases, you’ll breathe a sigh of relief when you have a spare card at the ready.
  5. Keep some cash in savings.
    Besides helping people who don’t yet have a credit history establish one, a positive aspect of secured cards is the peace of mind that comes with having your own money in the bank. If you ever want to cancel the secured card and get your deposit back (and don’t owe a balance on the card) that’s your right. Knowing it’s there if you ever need it is a wonderful feeling.

But what about the cost of keeping the secured credit card? Capital One has quite a number of secured products and only the Quicksilver One charges an annual fee. If that is the card that you have and you’d rather not pay the annual fee, call the company and ask if it would be willing to waive it for a good customer. Capital One might. If not, then you may want to pay for just one more year before you cancel.

Assuming you remain a responsible cardholder with two cards for a year or more, your credit scores will climb. After that it won’t be long before the credit limit that you currently have on the unsecured card will shoot up – and other credit issuers take notice. A third card in the mix can be beneficial, especially if it has a valuable rewards program. Then you can safely cancel the secured card. However, pursue all credit products prudently. Excess applications can drive a credit score down, and you should only have the number of cards that you can impressively juggle.

See related: How a secured card's security deposit works, How will closing secured card, opening unsecured card, affect credit?

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Updated: 08-20-2017

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