Close a Secured Credit Card

Secured credit cards are helpful when you need to rebuild your credit score, and can’t borrow using unsecured credit lines. However, once you’ve improved your credit score, you will probably want to switch to an unsecured card, where you can earn more rewards and don’t have to pay a deposit.

Steps

Closing a Secured Credit Card

1. Call your lender. Look for the customer service number on the back of your credit card and call to cancel your account. Tell the bank that you would like to close your secured credit card "at the cardholder's request," and give the date you want the cancellation to be effective. If you have an outstanding amount on the card, you should make full payment over the phone, or make an online or mail payment before the cancellation effective date. If you can't pay off your balance in full, you can still have your account closed to new charges, so that you can't add any charges to your existing balance. Once you have paid the balance down you can close your account completely.
   • Keep a written record of your phone call including the date, time of day, and the person to whom you spoke as well as any agreement reached.
   • While canceling your card will prevent you from making future purchases, it won't change the amount you owe the lender. You are responsible to pay any charges you made on the card before your cancellation, whether or not those amounts are posted on the day you cancel.
   • If you prefer not to call your lender, you can also send a certified letter to the credit card company stating that you wish to cancel your card. List your account number, the date you want your cancellation to be effective, and sign and date the letter. You should receive a confirmation from the lender that your account has been cancelled at your request.
   • Your lender will probably not want to lose your business, so you should expect them to try and convince you to stay. You can avoid this by making clear on the phone call that you are not interested in holding the card any longer, and giving the specific date you want to close the card. If the representative doesn't respect your wishes, don't hesitate to thank them for their help and say firmly "I am calling to cancel my card, I am not willing to negotiate."
2. Collect your deposit. The lender has a deposit on your secured credit card, and owes that amount back to you once the account is closed. However, the bank will probably hold onto that money for 30 – 90 days after the effective date of your closing, just to make sure there aren't any stray charges that haven't cleared your account yet. When you call your lender to cancel your card, ask how long they will hold the deposit and what method they will use to pay you back.
   • Make sure the bank has your most up to date address, so if they send your deposit by mail you will receive it right away.
   • If the date you expected your deposit back passes and you have not yet received it, call your lender again and ask about the status of your deposit. Reference the conversation you had at cancellation and the date the bank promised to pay you back. Ask what method they will use to refund your deposit and when you should expect it.
3. Cut up your card. Once you receive your deposit refund, or a cancellation confirmation, you will know that your account is permanently closed. You should cut up your card and discard it permanently so you don't accidentally try to use it, and so that someone else doesn't try to use the card or pretend to be you. Don't forget to update any automatic payments you have set up from your cancelled credit card.

Converting a Secured Card to an Unsecured Card

1. Check your credit score. Before you close a secured credit card, you should make sure that you have rebuilt your credit to a place where you can borrow using unsecured cards. Generally to take out an unsecured line of credit, you need a baseline credit score of at least 650. If your score is above 700, you likely are qualified to use most credit cards available on the market. If your credit score is still below these levels, you should hold on to your secured card a bit longer before making a switch.
   • Many secured credit cards include your credit score on your monthly statement. You can use your statements to know when it’s a good time to switch.
   • If your secured credit card statement doesn’t include your credit score, you can get a free credit score and report from the three largest credit bureaus once a year. Make your credit score request at annualcreditreport.com.
   • If you’ve already checked your credit score from the agencies in the last year and still aren’t sure what your current score is, you are also entitled to a credit score report each time you apply for a new card. As a general rule, you will need about one year of good behavior on your secured card to rebuild your credit and take out an unsecured card.
2. Contact your secured card lender. If you’ve made payments on time and limited the spending on your secured card, your lender will want to keep you as a customer once you are ready to switch to an unsecured card. You may be able to migrate your card from secured to unsecured, without having to do an application. Call the number on the back of your secured card, and ask about your options for converting your credit card.
   • Ask the bank about the specific details of the unsecured card you will use, such as the interest rate and whether or not there is an annual fee. You should also ask whether you can keep your same account number on your new card, so the good behavior on your secured card will stay on your credit history as long as possible. Ask your lender whether or not this is an option for your account.
   • Your bank may offer you the option of staying on a secured credit card and having a increased spending limit, so your spending can exceed your deposit. This is called a partially secured credit card, and may be a good option if your credit score is still too low to get an unsecured card. If you can qualify for an unsecured card, there is no reason to keep your savings tied up in a secured card.
   • If your credit score is strong enough to move to an unsecured card, don’t be afraid to tell the bank that. Tell your lender that you plan to switch to an unsecured card whether through them or otherwise, and find out the very best solution the bank can provide.
3. Collect your deposit. To set up a secured credit card you have to make a cash deposit of your credit limit to the lender. This ensures that the bank won’t lose the money you spend, and encourages the bank to lend to you when you have a low credit score. Once you’ve rebuilt your score and closed your account, you get your deposit back! The bank will probably hold your deposit an additional 30 – 90 days after you close your account, just to ensure that no additional charges come in after you close your account. After this period expires, the bank will pay you back your deposit, less any less fees or unpaid outstanding balance on your card.
   • To get your deposit back as quickly as possible, you may need to bug your lender. When you call to close your account, you should ask for how long it will be until the bank returns your deposit, and how they will return it. Make sure the bank has an up to date address on file to send a check, or instruct them to deposit the funds in your checking or savings account, if you have on with that lender.
   • If the bank gives you a new card to use on your unsecured account, wait until you have received the deposit on your secured card and then cut that card up and throw it away. This will make sure you don’t accidentally try to use the card.
4. Use your unsecured credit line responsibly. It is just as important to make payments on time and balance your spending on your new unsecured card as it was on the secured card. Remember to always make your payments on time, and never to use more than 1/3 of the amount you are approved for on your credit line. Your credit line isn't protected by a deposit anymore, so monitor your spending to make sure you don't end up with a large balance you can't pay off. This will ensure your credit score keeps improving.

Closing a Secured Card to Open an Unsecured Card

1. Choose your new credit card. Choose the credit card that fits your needs. Since you are transitioning from a secured card, you may be limited based on your credit score. If your score is above 700, you will likely qualify for most credit cards available in the market. If your score is less than 700, you may have to search to find a card that doesn’t charge annual fees or have a high interest rate.
   • Generally the best credit cards are those that earn cash rewards as you use them, called cash back cards. Cash back cards often provide options on how to redeem your points, including cash, but also including options like gift cards or travel rewards. These cash back cards generally provide more value than other rewards cards.
   • Some department stores, like WalMart, issue no fee credit cards that can be used at other stores, and will often lend to consumers with low credit scores. This may be a good option if you’re still not qualifying for general cash back cards.
   • Because your credit score is based partially on your approved credit limit, closing your secured card before opening a new card can lower your credit score and affect your ability to open the new card. You should start by choosing the unsecured credit card you want to use, and close your secured account after the new one is open.
2. Apply for your new card. Fill out an application for the card you want to use. To do this you will need your social security number, address, phone number, and date of birth. Once you are approved, the new lender will send you your card in the mail, and you should activate it by calling the number provided along with the new card. Make a purchase on your new card to make sure it is working before you close your secured card.
   • If you apply for a card and are not approved, the lender will send you details about why you weren't approved for the card, including your credit score. Read this information carefully, and consider whether you should wait and continue using your secured credit card until your score is stronger.
3. Close your secured card. Remember not to close your secured card until you have been approved for your new card and have received and activated it. Once this is done, you can close your secured card by calling the phone number on the back of your secured credit card, and asking to close your account. If you have an outstanding balance on the card, you can ask the lender to take the outstanding balance out of your deposit before paying the deposit back to you.
   • Your secured card lender may ask you to stay, and you should consider this option. If your goal is to increase your credit score, having two cards won’t hurt, and using only a small portion of the amount for which you are approved will increase your score. However, since you’ve already been approved for an unsecured card, tell your secured card bank that you no longer want to use secured cards. Ask what options they have for transitioning your secured card to an unsecured card, and make sure to avoid transitioning to a card that has annual fees.
   • Once you close your secured card, the lender will likely hold onto your deposit for an additional 30 – 90 days to make sure no extra charges come in on your account. Once the waiting period is over, they will pay you your deposit back. Make sure when you close your card you ask about the timeline for getting your deposit back, and give up to date information on your address or bank account, to get your deposit back smoothly.
   • When you have received your deposit back and know your account is closed, cut up your old credit card and throw it away. This will ensure you never accidentally try to use your closed credit card, and that no one can steal it and try to reactivate your account.
4. Use your new card. You should keep improving your credit by using your new unsecured card responsibly, in the same way you did your secured card. Remember to always make payments on time, and only use a small portion of your approved credit line. You should aim to use about 20% of your approved credit limit, and never use more than ⅓ to keep your credit score from dropping.

Warnings

• Closing a credit card will lower your credit score because you are reducing the total amount of approved credit in your name. If you are planning to open another credit card, do that before closing the old one. If you aren't going to open another card, think about the effects on your credit score of closing your account before doing so.

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Sources and Citations

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