Graduating from a secured card to an unsecured card

Secured credit cards are great for people who need to rebuild their credit, have poor credit or have no credit history at all. But their benefits are limited and they offer minimal long-term value.

A secured credit card typically comes with a low credit limit equal to a security deposit the card issuer requires from applicants, and it rarely offers rewards.

Unsecured cards require no security deposit. The issuer extends the cardholder a line of credit and charges interest and fees if they pay their balances late. You can make purchases or build credit with both secured and unsecured cards.

When you use secured cards responsibly, it can boost your credit score by establishing a positive payment history, paving the way to “graduate” to an unsecured card with the same bank. And that can mean a higher credit limit, more perks and a chance to reap rewards. Plus, you can get your security deposit back.

Keep reading for more insight into upgrading from a secured credit card to an unsecured one.

Best secured cards you can upgrade

If you’re looking for an unsecured card that you can eventually upgrade to an unsecured one, you have options:

Discover it Secured Credit Card

Why we picked it: When you have the Discover it® Secured Credit Card, the issuer reviews your account starting when you’ve made seven months of on-time payments to see if you can transition to an unsecured line of credit and get your deposit refunded. Bonus: You can earn rewards with this card.

Pros

• No annual fee
• Credit limit as high as $2,500
• No foreign transaction fees
• Two percent cash back at gas stations and restaurants (on up to $1,000 in purchases per quarter); 1 percent cash back on other purchases

Cons

• High APR: 27.24 percent (variable)

Who should apply: Those who like to travel internationally can get a lot of value from this card, thanks to not having to pay foreign transaction fees. If you’re looking to earn rewards, this could be the right choice for you.

Who should skip: Anyone who thinks they may end up carrying a balance should probably look elsewhere.

Capital One Platinum Secured Credit Card

Why we picked it: With the Capital One Platinum Secured Credit Card, you don’t have to worry about paying an annual fee, which makes it less stressful if it takes a bit longer to upgrade to an unsecured card. While there isn’t an official policy regarding graduating to a secured card, some users have reported success after the first year.

Pros

• Higher credit limit consideration after making six payments on time
• Low fees
• Low security deposit requirement

Cons

• No clear path toward graduating to secured card
• No rewards

Who should apply: Someone who doesn’t want to pay an annual fee will like this choice.

Who should skip: If you’re in a rush to graduate to an unsecured credit card, this probably isn’t the best option for you. If you really want to earn rewards, look for another card.

Citi Secured Mastercard

Why we picked it: You can upgrade to an unsecured card after 18 months of on-time payments to the Citi® Secured Mastercard®.

Pros

• No annual fee
• Up to $2,500 credit limit

Cons

• No rewards
• High APR: 26.74 percent (variable)

Who should apply: Consumers looking for higher credit limits can get up to $2,500 with this card.

Who should skip: Those who want to earn rewards should look elsewhere.

What to do if your secured card is unclear about upgrades

Not all secured card issuers automatically review an account to graduate it to an unsecured card but you can often request an upgrade. You’ll likely have the best luck getting it after you’ve made on-time payments for six months to a year.

By sticking with your issuer and opting for a different card, you can choose one with better rewards, higher credit line or lower interest rate. Plus, in some cases, remaining with the same issuer means no new application and no credit check — which translates to no impact on your credit score.

You are also free to find unsecured card offers from other issuers. Because the issuer reports your secured card payment history to the three major credit bureaus, they can evaluate your creditworthiness with that information. Good places to start are with unsecured cards designed for those with poor credit or checking for prequalified offers to make sure you have a good chance of approval.

Boost your chances of scoring an unsecured card

Whether you’re trying to graduate to an unsecured card or apply for a new one, there are some basic steps you can follow to improve your credit score and boost your chances of being approved, such as:

• Pay on time every time.
• Keep the credit utilization ratio low, if possible.
• Stay within your deposit limit.
• Keep track of your credit score and other accounts.
• Pay off all of your debts, including loans and other credit cards.
• Consider increasing your deposit amount to increase your available credit.
• Make payments in excess of the minimum due.

Bottom line

For people with poor credit, secured credit cards can help you build it back up and establish a positive payment history.

Once your credit score improves, it will be possible to make the transition to an unsecured card, which can offer you better benefits, including lucrative rewards like cash back, points and miles. Being responsible with your payments and your credit score is the quickest way toward unlocking a better card option.