Can You Cancel a Secured Credit Card?

Understanding Secured Credit Cards and Cancellation

Secured credit cards serve as a financial tool for individuals aiming to establish or rebuild their credit history. Unlike traditional unsecured credit cards, a secured card requires a refundable security deposit from the cardholder when the account is opened. This deposit acts as collateral for the credit card issuer and typically determines the credit limit; for example, a $200 deposit often results in a $200 limit.

Cardholders often consider canceling secured cards after building a positive credit history, making them eligible for unsecured credit products with better terms. While generally possible, canceling a secured card involves specific steps and considerations regarding your financial standing and credit profile.

Steps to Cancel Your Secured Credit Card

To cancel a secured credit card and ensure the return of your security deposit, first pay off any outstanding balance on the card in full. A zero balance is required for a complete refund of your security deposit.

Next, contact your credit card issuer to initiate cancellation. This can typically be done by calling customer service, though some issuers offer online portals or require written notice. During this conversation, note the representative’s name and instructions, and request written confirmation of the account closure.

Before finalizing, change any recurring charges or automatic payments set up on the card to an alternative payment method. Failing to do so could result in missed payments or fees. After confirming the account is closed, destroy the physical card to prevent further use or security risks.

Retrieving Your Security Deposit

Your security deposit is refundable upon account closure. The primary condition for its return is a zero balance, with no outstanding charges or fees. If a balance remains, the issuer may use a portion of the deposit to cover it before returning any remainder.

Deposit return methods vary by issuer, commonly including a check mailed to your address, a direct deposit, or a statement credit if upgrading to an unsecured card with the same issuer. The timeframe for receiving the refund typically ranges from 30 to 90 days after account closure and balance payment. Some issuers, like Discover, specify return within two billing cycles plus 10 days.

If your deposit isn’t received within the expected period, contact your issuer. Issuers may also return the deposit if your secured card converts to an unsecured card after responsible use, often after six to twelve months of on-time payments. This automatic review can lead to the deposit’s return even without explicit cancellation.

Impact of Cancellation on Your Credit

Closing a secured credit card, or any credit card, can affect your credit score depending on your overall credit profile. One immediate impact can be an increased credit utilization ratio. This ratio compares the amount of credit you are using to your total available credit; closing an account reduces your total available credit, which can make your utilization ratio appear higher, potentially negatively affecting your score. Financial professionals often recommend keeping this ratio below 30% for optimal credit health.

The length of your credit history also plays a role in your credit score. Closing an account, especially an older one, can shorten the average age of your active accounts. While a closed account with positive payment history can remain on your credit report for up to 10 years, its impact on the average age of your open accounts may diminish over time. For individuals with a short credit history or few other credit accounts, closing their secured card might have a more pronounced negative effect.

A diverse mix of credit accounts, including both revolving credit like credit cards and installment loans, is generally viewed favorably by credit scoring models. Closing a secured card, particularly if it is your only revolving credit account, could negatively impact your credit mix. However, if you have other active credit lines and a solid payment history, the impact of closing one secured card may be less significant. It is often advisable to consider opening a new unsecured credit card before closing an existing secured one to maintain available credit and a healthy credit mix.