To Close or Not to Close the Secured Credit Card Account

As per many experts advice, it may be unwise to close conventional credit card accounts because it can negatively impact your credit score. However, what happens with the secured credit card accounts you opened in order to improve on or build up a good credit history?

A secured credit card is one option people use to rebuild bad credit. Unlike conventional credit cards, a secured card requires that you sent a cash deposit into the account you hold with the credit card issuers. This cash serves essentially as collateral for all of the purchases you make on your credit card. The difference between a secured credit card and your typical bank account is that the secured card issuers will report your information back to the major credit reporting agencies. Anyone reviewing your credit history will not be able to differentiate between secured card accounts and conventional credit cards. The positive data being reported can help establish credit for people who have no credit or can help rebuild a consumers bad credit.

Can you close a secured credit card account with no direct affect to your credit? The key to building your credit score is to keep adding positive information onto your report from all sources. Once you have established or rebuilt a good history of credit, you should be able to qualify for a traditional credit card. If you properly use your new credit card responsibly and pay all of your other bills on time, your credit score will continue to rise. As long as positive credit is still being reported, you should be able to close your secured credit card account without any damage to your credit. You can close your secured account and get back the balance of money left over in the account.

If you have never researched the possibility of a secured credit card to repair your bad credit rating or to initially help you establish credit, now may be a good time to look into it. With the rough economic times we are now in, credit scores need to be well maintained and your FICO score needs to be 730 or better if you hope to qualify for a loan or additional lines of credit. A secured credit card can help you boost your credit score now so that you will have a good credit score when you need it most.

Selecting a secured credit card is not much not different than selecting a traditional credit card. You need to compare secured cards from different lenders and find the card that best suits your lifestyle and your financial situation. Reestablishing your credit score is not an overnight task so you must continue to use your credit wisely and avoid overspending on your credit card. With some hard work and patience, your FICO score can be raised and eventually you will be able to qualify for a conventional credit card if you need more purchase power.

In conjunction with using a secured card to improve your credit, you also need to practice other good financial habits. Make sure that you are consistently paying your other bills on time and work to reduce your outstanding balances as soon as possible. Request copies of your credit reports and go over the information for all errors or inaccurate information. Sometimes the simplest mistakes can negatively impact your credit score. Once you have raised your credit score enough to qualify for other credit cards, make sure you only open new accounts that you actually need and not just apply for any card that you think you can get now that your credit has bounced back.

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This entry was posted on Thursday, February 12th, 2009 at 6:15 am and is filed under Debt & Consolidation, Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.