Secured credit cards require an upfront refundable deposit to establish the line of credit. As your credit improves, you may want to upgrade to a new secured card with better terms. Properly managing security deposits during upgrades involves planning and coordination.
How Secured Card Deposits Work
With secured cards, the bank holds a cash deposit as collateral for the account. This provides security for the lender and allows applicants with poor/no credit to get approved.
The deposit amount equals the credit limit you are approved for. You still have to make monthly payments as with a regular card. After demonstrating responsible usage for 6-12 months, the issuer may refund the deposit and upgrade your account.
Deposits provide the collateral allowing those with poor credit to prove themselves and start rebuilding their profile.
When to Consider Upgrading Secured Cards
The best times to consider upgrading to a new secured card include:
- Your credit scores have improved significantly
- You’ve built substantial positive payment history
- Your current card lacks rewards or other features
- You need a higher credit limit
- You can afford a larger refundable deposit amount
- Your bank won’t graduate you to unsecured credit
Upgrading allows you to enjoy better terms and increased limits as your credit profile strengthens.
How Upgrading Secured Cards Works
The process for upgrading to a new secured card involves:
- Identifying a better secured card to upgrade to
- Applying and getting approved for the new secured card
- Making a plan to fund the new card’s deposit requirement
- Transferring balances from old secured card to new card
- Closing old secured account after refunding original deposit
Timing the steps properly allows you to essentially transfer your security deposit to the new issuer.
Choosing a Better Secured Card
Look for secured cards with these improved features and benefits when upgrading:
- Higher maximum credit limits
- Better opportunities to graduate to unsecured credit
- Lower interest rates and fees
- Rewards like cashback or travel points
- Added benefits like intro 0% APR periods
- More useful account management tools and payment features
Evaluate your current spending and financial needs to pick a card that fits your situation better.
Funding the New Security Deposit
When upgrading, you’ll need to fund the new card’s security deposit requirement. Strategies include:
- Waiting for your old deposit refund to fund the new deposit
- Saving up independently to afford the new deposit
- Paying in installments if allowed during the account opening process
- Downgrading your credit limit request if the deposit is unaffordable
Look for new secured card offers that allow deposit installments over time rather than one lump sum. This makes upgrades more accessible.
Refunding the Old Security Deposit
To unlock your previous deposit amount, you must close your old secured account.
Many issuers refund deposits:
- Within 1-2 billing cycles after closure
- Once all balances are paid off in full
- After destroying all associated secured cards
- Upon request once you open the new upgraded account
Do not close the old account until the new one is open to avoid gaps in credit.
Transferring Balances to New Account
After opening the upgraded secured card, transfer any balances from your old card:
- This maintains credit utilization at the same levels
- Lets you take advantage of any intro 0% APR offers
- Consolidates payments to one account
Before transferring, check if balance transfers incur fees. Factor this into the cost before upgrading cards.
Transitioning Without Gaps
Follow this optimal process to smoothly transition when upgrading secured cards:
- Request deposit refund from old issuer.
- Open new secured account once approved.
- Wait for old deposit refund to arrive.
- Use refunded deposit to fund new security requirement.
- Transfer balances to new secured card.
- Close old secured card after ensuring deposit is returned.
Timing each step properly ensures your credit remains optimized. Avoid gaps between closing one account before the next opens.
Graduation Options After Upgrading
The new upgraded secured card should offer improved graduation options such as:
- Clear policies on graduating to unsecured cards
- Timeline for refunding security deposits
- Qualification criteria to graduate
- Reviews for graduation at regular intervals
- Pre-approvals for unsecured card offers from the same issuer
Evaluate graduation pathways the new card provides and their requirements before upgrading. Make sure they align with your goals and credit profile.
Key Takeaways for Managing Upgrades
- Research new secured card options as your credit situation improves
- Time applications to transfer your security deposit to a better card
- Wait for deposit refunds before closing old accounts
- Transfer balances to the new card to maintain good utilization
- Select cards with clear graduation terms aligned to your goals
- Closing old cards and opening new accounts may damage credit temporarily
With proper planning, upgrading secured cards can provide access to better features, limits, and terms over time as you build your credit.