If you need to build up credit due to having no credit or due to having bad credit a sure fire method is going with a secured credit card. Yet at some point you need to get your secured credit cards converted into full fledged credit cards. When you get your secured cards upgraded to regular credit cards you will receive your deposit back with interest. When is the best time to get your secured cards converted to regular credit cards?
Your only reason to go with a secured card in the first place is to boost your credit score. So you simply need to monitor your credit score. Some banks secured credit cards will offer you your FICO score for free each month, such as Capital One credit cards. Knowing where your score stands is the knowledge you need to choose when to make the switch. You will need a credit score of at least 650 to get a good credit card, and once your score rises past 700 you can obtain almost any credit card you want.
You need to keep the card going at least a year, and you need to keep your balance at or below 20 percent of your available credit limit. This will boost your credit score big time. After about a year is when you should start looking hard at your credit score. If you have not made any late payments and followed the advice about your credit limit your credit score should be at least 650. I would wait to make the switch until your credit score reaches the 700 range.
You have two options when it comes time to make the switch. The first is to ask your credit card company or bank to simply upgrade the credit card to a non-secured credit card. This is the ideal option. The second option is the least ideal, as it could harm your credit score, that option is applying for a new credit card and closing out the old card. The reason why this is not ideal is applying for a new card will result in a hard inquiry, plus when you close a card out your score tanks if your credit utilization rate changes due to closing the account down. You can also tank your score due to having to few open accounts now on your credit report. If you do decide to apply for a new card it would be best to keep the old account open for a time at least, allowing your new account to age somewhat before closing out the old one. You should keep the old account open for at least a year.
If your bank resists upgrading your secured credit card to a regular card you may need to take your business elsewhere. Banks love to hold onto that deposit since they make money on those funds unless the bank advertised that they would give you the deposit back plus interest. If you do need to take your business elsewhere you will still need to keep the old account open for an additional year.
If they do convert your card over to a regular card ask them to keep your account number the same. This is so that you can continue to build your credit history on your already aged account. Length or duration of your active accounts also contributes to your credit score.
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