How long should I keep a secured credit card?

You can build credit with a secured credit card in as little as one to two months, but it will take many months or even years to build a consistently good or excellent credit score. The length of time also depends on whether you’re building credit from nothing or rebuilding damaged credit.... read full answer

If you have no credit, you could see a good score after just a few months of paying on time. You’ll have a VantageScore after one month and a FICO Score after 6. With bad credit, though, it will probably take 12-18 months of responsible use for you to move up to the fair credit range. Secured credit cards are great for building credit because they are easy to get and report to the credit bureaus just like unsecured cards.

But it's hard to give you an accurate estimate of how long it will take to build credit with a secured credit card without knowing the details of your situation. That’s where WalletHub can help. Just sign up for a free account, and we’ll give you a personalized credit analysis that will tell you what to improve and give you a better sense of how long it will take.

Here’s how long it takes to build credit with a secured credit card:

• If you have no credit, it will take 1 month to get a VantageScore and 6 to get a FICO score. Depending on how responsibly you use your card, your first score could be anywhere from bad to good.
• If you pay your bill on time and otherwise manage your finances responsibly, you can rebuild from a bad credit score (300-639) to a fair credit score (640-699) in approximately 12-18 months.
• A good credit score based on limited information could easily fall due to an increase in credit utilization or a single missed payment. Building and then keeping a good or excellent credit score requires consistency over time. This is a project measured in years.
• For people rebuilding credit, it will take 7-10 years for some negative information, like bankruptcies and late payments, to disappear from your credit report. But the older they are, the less impact they will have on your score.

If you’re looking to rebuild your credit, secured credit cards are the best way to do it. They’re easy to get and are indistinguishable from unsecured cards aside from the deposit requirement.

Rebuilding credit will take a while, so it’s best to get started as soon as possible. Some good behaviors to practice are always paying on time and using less than 30% of your available credit.

Checking your credit reports regularly for errors and disputing any you find is also important.

Closing a secured credit card has the potential to hurt your score. But that’s not because it’s a secured card. You run the risk of a slight drop in your score when closing any credit card because it can make your credit history seem shorter and reduce the total amount of credit you have available. And the impact usually is most significant when you close your oldest account.... read full answer

All else being equal, it’s best to keep unused accounts open. But it’s a slightly different story if you’re paying an annual fee or leaving a deposit in the custody of your card’s issuer. That’s especially true if you don’t need your credit score to be in top shape in the very near future. You don’t want to waste money on something you never use, after all, or give your card’s issuer an indefinite loan. And since secured cards typically don’t pay interest on deposits, there are far better uses for your fee and deposit money in the long run. For example, if you placed a $200 deposit on a secured credit card in 2008 and never closed your account, that $200 would still be $200. But if you invested that money in an S&P 500 index fund, you’d have more than $600 today.

Of course, you’d need to use a secured card for a while to improve your credit score enough to qualify for an unsecured card. And if you consistently pay your secured card’s bill on time, the issuer may offer to refund your security deposit. So it’s important to weigh all the different variables before deciding whether or not to close a secured credit card. And that includes how soon you plan to apply for a mortgage, auto loan or other major financial commitment for which your credit will be checked. A bit of temporary credit score damage won’t cost you if you don’t try to borrow until your score rebounds.

Here’s what you need to know about closing a secured credit card:

• If you close the card, your average account age decreases and your total credit utilization increases. This may lead to a temporary credit score drop.
• If you don’t close the card, it will continue to report positive information to the credit bureaus each month, even if you don’t use it and there’s no balance.
• If your card charges an expensive annual fee, you may want to close it rather than pay every year for a card you’re not using.
• When you close a secured credit card, you’ll get your deposit back minus any outstanding balance.
• Some issuers will let you graduate to an unsecured card after consistent on-time payments. That means you’ll get your deposit back and often receive better benefits on your card.

In all, closing a secured credit card might not be the greatest idea. But most secured card users do it at some point. And you can lessen the impact with good timing.

Yes, a secured credit card will increase your limit under certain conditions. For instance, you can add additional funds to your security deposit to raise your credit limit. Plus, if you make several consecutive timely payments, the issuer may increase your limit without an additional deposit.

With a secured credit card, you add a security deposit to establish your credit limit. As secured cards are designed for people with less than good credit, the deposit also serves as collateral. The amount of your deposit determines your credit limit. You’ll be refunded the deposit in full when you close your account in good standing. Any unpaid balance or fees owed will be deducted from your balance when you close the account.... read full answer

How to increase your secured credit card limit:

• Increase the amount of security deposit: You can add additional funds through your online account or by contacting the issuer’s customer service line. When you call, you will need to provide your personal information to verify the account. Please note that some credit card issuers require that you make additional deposits (up to the maximum amount allowed) before the account opens.
  
  Check with the issuer to make sure your deposit is within the secured card’s limits. Some of the highest limit secured credit cards, such as the U.S. Bank Secured Visa® Card, allow security deposits of up to $5,000.

• Automatic credit limit increases: Some issuers will consider you for a credit limit increase without an additional deposit after you make your first several payments on time. The Capital One Platinum Secured Credit Card is a good example. However, you have no control over how much and when you credit limit will be increased, if at all.
  
  When evaluating your account for automatic credit limit increases, the issuer will perform a soft inquiry on your credit report. This inquiry does not affect your credit score, nor does the issuer need your permission to generate it. Not all secured credit cards offer automatic credit limit increases, though.

Alternative ways to increase your credit limit on a secured credit card:

Note that your card may be eligible for graduation to an unsecured credit card. If your account has been in good standing for more than 12 months, contact your issuer and see if you are eligible for graduation. If approved, you will receive a refund on your security card. You may also be eligible for automatic credit limit increases or request them yourself if you’ve used your card responsibly.

If you are not eligible or graduation, you can always search elsewhere and apply for an unsecured card that best fits your credit profile. Keep in mind that a credit card application results in a hard inquiry on your credit report, which may cause your score to drop a bit in the short term.