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Should I Ditch My Old Secured Credit Card?

By Nathan Hamilton – May 14, 2017 at 10:05PM

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They're an essential credit-building tool.

People looking to build credit commonly use secured credit cards to establish a credit history. But secured cards do run their course as your credit score improves, as there are better credit cards for cardholders with excellent credit.

In the previously recorded Facebook Live video below, Motley Fool analysts Michael Douglass and Nathan Hamilton answer a user-submitted question about the right time to get rid of old secured credit cards you aren't using.

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Douglass: Patrick asks, "Should I get rid of my secured credit card now that I have other regular credit cards?" Great question. Generally speaking, you get a secured credit card because you're trying to build credit. That's because you have a thin file, which means you basically don't have any history of debt, so none of the regular credit card issuers want to give you a credit card, because they have no idea how safe you are. So, you get a secured card instead. Usually, they come with lower options for rewards or anything like that, or even none. I would say, generally speaking, if you're at the point where your credit score is such that you can get other credit cards, generally, those other ones are going to be a better bet. Of course, on the flip side, if the secured credit card also helps you keep to a budget and keep making smart financial decisions, then I would say that would be a good reason to argue for keeping it, if you're not ready to jump into the deep end of the pool yet.

Yeah, I like your point there about budgeting and so forth. A secured credit card, your credit limit is limited to the amount of your deposit, so it does help you with budgeting. It's a credit card and you do incur interest charges, but it almost acts like a debit card, because there's cash in the bank backing it. If your question is more credit score-related, there is no harm in keeping that account open, as long as it's not incurring an annual fee. There's no reason to keep it open and pay a fee to potentially increase your average account age, which influences your credit score positively. In those scenarios, sure, keep the card open. But if there are better offers on the market, of course, go with those cards, and say "Bye" to the secured one.

Nathan Hamilton owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.

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