Transitioning from a Secured to an Unsecured Credit Card
Graduating to an unsecured credit card is a serious financial accomplishment. You’ve demonstrated credit worthiness, which can help open up more and more financial opportunities in the future. Here are three simple tips that can help ensure a seamless transition:
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1. Resist the urge to open multiple credit cards at once
Now that you have established credit, you might notice an uptick in the amount of pre-approved card offers you receive. While it can be flattering to see these pour in, keep in mind that opening several credit cards in a short time frame may cause lenders to perceive you as a riskier borrower. Resist the temptation to jump at every credit card offer promising free cash, bonus points, complimentary airfare and low interest rates.
New accounts will lower your average account age, which could have a larger effect on your credit scores if you are new to credit. 1
2. Keep the “30% rule” in mind
To maintain good credit — and perhaps increase your credit score even more — keep your overall balances below 30% of your total lines. Once you exceed the optimal “debt utilization ratio”, your credit score may be negatively affected. 2 To make sure you keep your balances in check, set up account balance alerts and automatic payments.
3. Unsecured credit cards require more self control.
Though payment technologies like mobile wallets and websites that store your credit card information certainly add conveniences, they present a risk by making it too easy to spend mindlessly. “Just as it’s hard to be disciplined about your diet when there are donuts laid out at work every day, it’s harder to be disciplined about money when it is SO easy to spend it,” says licensed clinical psychologist Dr. Ramani Durvasula. 3
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Unsecured credit cards do make it easier to spend compared to secured credit cards: Credit lines tend to be higher, creditors are more apt to increase your available credit the longer you own the card and demonstrate responsible use, and you may begin to receive offers to open new or upgrade existing cards more frequently. Dr. Durvasula says it’s important to stay in control by using available tools (think payment reminders, account alerts), that help maintain your financial discipline once you have an unsecured credit card.