Why Keeping a Secured Credit Card Can Be Beneficial Even After Improving Your Credit
At O1ne Mortgage, we prioritize consumer credit and finance education. While many people aim to transition from a secured credit card to an unsecured one as quickly as possible, there are several compelling reasons to keep a secured credit card even after your credit score has improved. Here, we explore five key benefits of maintaining a secured credit card in your wallet.
1. Continue Building Credit
A secured credit card can help you build your credit indefinitely, provided you use it responsibly. By making timely payments and keeping your credit utilization low, you can achieve the best results. Payment history and the amount you owe on your credit accounts make up 35% and 30% of your FICO score, respectively. By continuing to exhibit positive behaviors on these accounts, you can help your credit score grow.
Whether you are new to credit or rebuilding your credit, consider these starter cards. Sign up for free, get the right card for you, and improve your credit by using your credit card, paying your bill on time, and monitoring your credit score progress for free.
2. Avoid Hurting Your Credit From an Account Closure
Some secured cards offer the option to convert to an unsecured card after some time. However, if yours does not, you might be tempted to close the account and move on to another unsecured card. Closing a credit card can negatively affect your credit score by reducing your overall credit limit, which could increase your credit utilization and decrease your credit score.
Additionally, after about 10 years, the account will be removed from your credit report, affecting the length of your credit history, which accounts for 15% of your FICO score. Instead of closing the account, consider using your card for small, recurring purchases to keep it open.
3. Use as a Budgeting Tool
If you have acquired a new unsecured card and are unsure of what to do with your old, low-limit secured card, consider using it as a budgeting tool. For example, you could put all your entertainment and dining expenses on this card. If you get close to your limit, cut off your spending in these categories for the rest of the billing cycle and pay your outstanding balance in full.
Remember to stay mindful of your credit utilization, which should ideally stay below 10% across all accounts for the best credit scores.
4. Option to Convert It to an Unsecured Card
At some point, you may have the chance to convert a secured card to an unsecured card, which may better fit your financial needs after you’ve improved your credit. Converting your secured card to an unsecured one can allow you to maintain any accrued rewards and qualify for an increased credit limit. Increased credit limits are desirable even if you don’t plan to spend that much, as they help to reduce your credit utilization ratio.
5. Can Limit Your Temptation to Spend
For some, having a credit card can be a huge spending temptation. However, the convenience and safety of credit cards for online purchases or automated payments make it hard to live without one. By keeping your secured credit card, you can curb temptation while still taking advantage of having a credit card. Secured cards often have a lower credit limit, typically equivalent to the card’s security deposit, which can help restrict your spending and prevent you from amassing large amounts of debt.
Feeling Secure With Credit
Secured cards can be a valuable tool for building or rebuilding your credit. If you are strategic with secured cards, you can find other uses for them as well. After you have rebuilt your credit with a secured card, consider some of the above uses to help you on your continued credit journey.
To ensure your spending and credit moves are still improving, take advantage of free credit monitoring services. With free monitoring, you’ll know as soon as your score changes. You can also get alerts for suspicious activity or monitor your financial account balances all in one place.
As you see your credit score improve, consider complementing your secured card with an unsecured card. With improved credit, you may qualify for cards with perks like travel rewards or high cash back rates. Feel confident applying for unsecured cards with comparison tools that can help you gauge the odds of approval without hurting your score.
At O1ne Mortgage, we are here to assist you with all your mortgage service needs. Call us at 213-732-3074 to speak with one of our expert loan salespersons. We are committed to helping you achieve your financial goals and secure the best mortgage options available.
