How to Graduate From a Secured Credit Card to a Rewards Card

by Lyle Daly | Updated July 21, 2021 - First published on Feb. 14, 2021

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Smiling woman with laptop sits cross legged on sofa holding a credit card.

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With good financial habits, you could get your deposit back and upgrade to a card that earns rewards.

When you either have bad credit or not much of a credit history at all, secured credit cards are usually one of your only options. This type of card requires a security deposit upfront, so card issuers can be much more flexible with who they approve.

You probably don't want the credit card company to keep your deposit forever, and that's where graduation comes in. Many secured cards can graduate to unsecured rewards credit cards. If the card issuer lets you graduate, then you get your deposit refunded, and you're upgraded to a card with more benefits.

In some cases, it's possible to graduate from a secured credit card in a year or less. If you follow a few steps, you'll move up to a rewards card as soon as possible.

1. Pick the right secured credit card

Not all secured credit cards can graduate. If you choose a secured card that can't, then you're out of luck. The only way to get your deposit back will be to close the card.

Most of the best secured credit cards offer graduation. You can usually check on the card issuer's website, specifically the page for that secured card. If there's no information on whether the card can graduate, try calling the card issuer to ask.

2. Use your card at least once per month

After you get your secured card, you need to use it for at least one purchase every month. It doesn't need to be expensive. You could set up the card as your payment method for a monthly bill you have, such as Netflix or Spotify.

There are two reasons this is important. The first is that you need to build a good payment history to increase your credit score. Every time you have a credit card bill and you pay it on time, it helps your credit.

The card issuer will also want to see activity on the card before it lets you graduate. If you never use your card, then the card issuer won't know if you can manage credit or not.

3. Pay your credit card bill on time

The most important habit you can have with your credit card is paying on time. Missed payments lead to late fees, and they can heavily decrease your credit score if they're late by 30 days or more.

Your payment history will also be crucial when the credit card company decides whether to graduate you to a rewards card. If you've had any late payments, the process will likely take much longer.

You may want to set up autopay to ensure your credit card bill is always paid on time. Another option is to set a recurring reminder in a calendar app.

4. Don't let your balance get higher than 20% of your credit limit

Another factor that affects both your credit score and graduation to a rewards card is how much of your credit you use. This is called your credit utilization ratio. You can expect the card issuer to evaluate it as part of the graduation process.

Consumers with the highest credit scores typically have a credit utilization of no greater than 20%, meaning they don't use more than 20% of their available credit. To graduate from a secured card as soon as possible, it's best to do the same.

So, if your secured card has a $300 limit, always try to maintain a balance of $60 or less. To calculate this yourself, simply multiply your credit limit by 0.20.

5. Communicate with the card issuer

The card issuer will probably review your account periodically to see if it's time to graduate your card. But you may also be able to move the process along more quickly by calling and asking if you're eligible to graduate yet.

Before you call, check if there's any guidance on the card issuer's site about when it will consider graduation. For example, one esteemed secured card issuer states that it will begin reviewing your account after eight months. In that case, you should wait at least that long to call.

If there's not any guidance available, then six to 12 months after you get the card is a good timeframe. And if you're told it's too early to graduate, you can ask how long it takes.

When used correctly, secured cards are like stepping stones that allow you to build your credit so you can eventually move on to the top credit cards. All it takes is the right credit habits, and you'll be on your way to an upgrade.

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