Can I Cancel a Secured Credit Card?
Navigate the considerations and steps involved in closing a secured credit card, understanding deposit return, credit score effects, and alternatives.
A secured credit card helps individuals establish or rebuild credit. Unlike traditional cards, it requires a cash deposit that typically acts as its credit limit. This deposit provides security for the issuer, making the card more accessible to those with limited or damaged credit.
The Cancellation Process
To ensure a smooth transition when canceling a secured credit card, gather essential information before contacting your card issuer. This includes your account number, personal identification details, and recent statements.
Confirm your account balance is zero before cancellation, paying off any outstanding charges or fees. Also, change any recurring payments or subscriptions linked to the card to an alternative method.
Contact the card issuer directly, usually by phone. Some issuers offer online or written options for closure requests. Always request written confirmation of the account closure for your records.
Your Security Deposit
The security deposit for a secured credit card is held as collateral. It is refundable once the account is closed and all balances are settled, provided the account is in good standing.
The timeframe for receiving your deposit varies, typically 30 to 90 days after closure. Some issuers may process refunds faster.
Refunds are usually issued via check, direct deposit, or statement credit. Delays can occur if there are unsettled balances or late fees.
Credit Score Impact
Closing a secured credit card can influence your credit score in several ways, primarily by affecting your credit utilization ratio and the average age of your credit accounts.
Your credit utilization ratio is the amount of credit used compared to total available credit. Closing a card decreases total available credit, which can increase this ratio if you carry balances on other cards. Keeping this ratio below 30% is recommended.
The average age of your credit accounts is another factor influencing your credit score. Closing an account, particularly an older one, can shorten the overall average length of your credit history. While a closed account may remain on your credit report for up to ten years, its closure can still affect the calculation of this average, especially if it was your oldest account. A less diverse mix of credit, such as losing your only revolving credit line, can also have an impact.
To minimize potential negative impacts, consider paying down balances on other credit accounts before closing the secured card to keep your utilization ratio low. If you have multiple credit cards, closing a newer account rather than an older one may help preserve your average account age. Maintaining other active accounts in good standing and avoiding new credit applications immediately after closing can also help mitigate adverse effects.
Alternative Actions
Instead of canceling, consider alternatives like “graduating” to an unsecured card with the same issuer. This converts your secured card to unsecured based on responsible payment history.
If you qualify for graduation, your security deposit is typically returned, and you retain the existing credit line and associated credit history, which is beneficial for your credit score. Not all issuers offer automatic graduation, so it can be helpful to inquire about their specific policies and eligibility requirements.
Another option is a “product change” or conversion to a different card from the same issuer without closing the account. This usually means your credit line and account history are maintained, and it typically does not involve a hard inquiry on your credit report. This approach allows you to transition to a card that better suits your current needs while preserving your credit history.
Maintaining the secured card account, even with minimal use, can also be a beneficial strategy. Keeping an older, positive account open contributes to a longer average age of accounts and a lower credit utilization ratio. Making small, occasional purchases and paying them off immediately can keep the account active and in good standing without incurring debt. If your primary motivation is to simplify finances, reducing your reliance on the card rather than closing it completely can be a practical approach.