Going from a secured to unsecured credit card
Whether you’re new to Canada, completely new to credit or rebuilding after a rough patch, a secured credit card can be useful for laying a solid financial foundation. And if you’ve already been using one for a while, the next milestone in your financial journey may be closer than you think.
What’s a secured credit card and how does it work?
A secured card is a type of credit card that requires you to pay security funds. These funds then act as collateral and help show the credit card issuer that you’re committed to using your card responsibly.
Unlike with debit cards, payday loans or prepaid cards, your behaviour with a secured card gets added to your credit history and reported to credit bureaus. This means every on-time payment, and responsible credit decision you make with your card can help improve your credit score over time.
Is it possible to go from a secured card to a traditional unsecured card?
Absolutely, and it’s considered a major milestone! The biggest difference between secured and unsecured credit cards is that unsecured cards don’t require security funds. Otherwise, both let you tap, build your credit history and show lenders you can manage credit responsibly. And that’s what leads to the next step: graduating to an unsecured card. Beyond getting your security funds back, moving to an unsecured card means your healthy credit habits are working and that you’re on the road to a more solid financial future.
How to upgrade from a secured to unsecured credit card
Different credit card issuers have different ways of going about it and everyone’s journey is unique. Some companies automatically review your account every so often and reach out with an invitation when they think you’re ready. Others may wait for you to reach out. But here are a few signs you might be ready to make the jump:
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You’ve been making consistent, on-time and higher than minimum payments for the past several months
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You haven’t missed any payments recently and aren’t carrying big debts somewhere else
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Your credit score has improved considerably since you first got your card
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You’ve maintained a low credit utilization rate and haven’t been maxing out your card
Tip: Use our free credit monitoring tool, Credit Keeper® to check in on your score** and track your progress.
What to do with your old card?
After qualifying for an unsecured card, you may find yourself wondering what to do with your secured card and whether or not you should close your old account. Take the time to weigh the pros and cons of each option. So long as you’ve paid off your balance, closing your old account means getting your security funds back. On the other hand, keeping your old account open can have positive effects on your credit utilization rate and credit history.
The big picture and setting yourself up for success
Whether you’re just a few months into your journey with a secured card or just about ready to graduate to an unsecured one, remember that progress with credit may not happen overnight, but it does happen. So keep doing what’s working. Every one-time payment, each smart decision, gets you closer to your goals.