Editorial Policy

Should I get rid of my secured credit card?

Eva Norlyk Smith Ph.D.

March 24, 2014

QDear Eva,

I've had a secured card for about four years; the limit is $250. My credit scores have gone up, and I would like to do away with this card. Is this the right thing to do? –Janis

AHi Janis,

Secured credit cards can be necessary when you need help building or restoring credit. But, you're right, as a long-term credit strategy, they are not a great option. First, a $250 credit limit isn't much use as a line of credit. Second, with many secured credit cards, you pay dearly for that limited line of credit through steep annual fees and other charges.

Secured cards are typically stepping stones to a regular credit card. So, the question you need to ask is whether you are ready to graduate from that secured card.

The answer depends on whether your credit score has improved enough to qualify you for a regular bank credit card. Have you begun to get credit card offers in the mail? Card issuers regularly mail invitations with pre-approved offers to people with good or excellent credit. So, if you're getting credit card offers, you can feel confident that your credit has improved sufficiently.Ask Eva

You can also pull a copy of your credit score at myFICO.com from one of the big three credit bureaus for about $20 to see what range you fall into, and then apply online for a credit card for your category of credit. Standards vary among issuers, but according to FICO, a score in the mid-700s and up is generally considered excellent. For scores below that, but still in high 600s to low 700s, try credit cards requiring good credit.

If your FICO score falls more in the low to mid-600s, you still have options — look online for credit cards for people with fair or average credit.

If your credit hasn't improved sufficiently for you to qualify for either of these categories, you're probably stuck using a secured credit card for a while longer until your credit improves.

Even so, you have options. Not all secured credit cards are created equally, and you may be able to find a secured card with much better terms than the one you have.

You need to take a look at how you are using your secured credit card if your score has not improved.

You need to be paying the card on time every month: That is a no-brainer.

Second, credit scoring models don't like to see credit card balances go above 30 percent of the credit limit, since it makes it look as if you use credit excessively.

For a card with a $250 balance, keeping balances below 30 percent of the credit limit means that the balance can never exceed $85. You have to be very disciplined to stay within that range. Your best bet is to either not use the card very often and keep charges low, or pay the balance off a couple of times a month.

In either case, get into the habit of paying the balance off in full every month. It's a good, basic credit card practice to adopt, and it also will help build your credit score faster and more effectively. And, once you do get another credit card, you can close that secured card and get your deposit back.

Climbing up the credit score ladder takes time, patience and careful planning. But it's not rocket science, and it is a very predictable process. Best of all, it's possible to build an excellent credit score even with a modest income. Once you educate yourself about the basic steps to building credit and stick with them, there is no reason you shouldn't be able to develop excellent credit. And once you get there, you'll have your pick of credit cards and will qualify easily for car loans and even a mortgage. So, stay with it!

Got a question for Eva? Send her an email.