“How to Effectively Use and Close a Secured Credit Card”

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Building Credit with a Secured Credit Card

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding secured credit cards. For any mortgage service needs, call us at 213-732-3074.

How Long Does It Take to Build Credit With a Secured Card?

Secured credit cards can be an excellent tool for those new to credit or looking to rebuild their credit history. However, they are not typically designed to be permanent solutions. The duration you should hold onto a secured credit card depends on various factors, including your current credit situation, how well you manage the account, and the card’s upgrade options.

Your Current Credit Health

If you’re starting from scratch, it may take longer to establish a good credit score compared to someone with some positive credit history. Conversely, if you have serious derogatory marks on your credit reports, it can take even longer to see improvements.

How You Use the Account

Maintaining a low balance and paying your bill on time every month is crucial. Secured credit cards typically have low credit limits, so regularly bumping up against your credit limit can slow your progress.

Other Credit-Building Efforts

Using a secured credit card is just one way to build credit. Expanding your efforts with other credit-building strategies can help accelerate the process. It can take several months to over a year to build up your credit score enough to qualify for better credit card options.

Should I Close a Secured Credit Card After Building Credit?

Once you’ve achieved your credit goal, you might consider closing the secured credit card. However, there are a few things to consider before proceeding:

Loss of Available Credit

Closing your secured credit card can negatively impact your credit utilization rate if you don’t have significant available credit on another card.

Impact on Credit History

If you didn’t have a credit history before opening the secured credit card, closing it could negatively affect your length of credit history.

Effect on Credit Mix

Having different types of credit can improve your credit score. Closing the secured card will make your credit file less diverse, which can negatively affect your score.

Before closing the card, check with your card issuer about upgrade options. Some issuers may automatically consider you for an upgrade to an unsecured card after a certain period. If your issuer doesn’t offer an upgrade, it may be better to close the account and get your deposit back, especially if the card charges a hefty annual fee.

How to Properly Close a Secured Card

If you’ve decided that closing your secured credit card is the right move, follow these steps to minimize potential negative consequences:

Open a New Credit Card

If your credit is in good shape, consider opening another credit card to lessen the impact of losing the available credit on the secured card. Avoid applying for too many cards too quickly, as multiple hard inquiries can damage your credit.

Pay Off Your Balance

Some issuers won’t close your account until there’s a zero balance. Stop using the card, wait for pending transactions to go through, and then pay off the balance in full.

Cancel Recurring Charges

If you set up your secured credit card to pay for subscriptions or other recurring bills, change the payment method to avoid another charge going through while you’re canceling the account.

Redeem Your Rewards

If your secured credit card offers rewards, check your balance and redeem what you can to avoid forfeiting that value.

Contact Your Credit Card Issuer

Request an account closure through your online account, over the phone, or in person. Explain your reason for canceling the card and ensure the issuer has the correct information for your security deposit refund. Request written confirmation once the account has been closed.

Monitor Your Credit Reports

Credit card issuers typically report to credit agencies once a month, so it can take a while for the closure to show up on your credit report. You can check your credit report for free anytime to stay on top of the process.

Monitor Your Credit Progress

Regardless of where you are on your credit journey, it’s important to check your credit score and reports regularly to understand how your actions impact your overall credit health. With O1ne Mortgage’s credit monitoring service, you’ll get free access to your credit report, making it easy to track your progress. For any mortgage service needs, call us at 213-732-3074.

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