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Cancelling a Secured Card


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A while back I got a secured credit card from Capital One that hasn't been half bad. The interest rate is a bit high however.  My scores improved and I was successful in obtaining an unsecured card with a much higher limit.  I would like to cancel the secured card.

 

But my question is, does cancelling a secured card hurt my credit rating at all?  Is this a wise move?

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It is a wise move.  Open secured cards actually hurt your true FICO scores a bit, so canceling will improve most of them.  Your FAKO score might dip...they're closest to the "sucker score'...but don't worry about that.

 

Take the money back from the security you put up and put it in a savings account.

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  • 3 months later...

I'm sorry, but that's not quite true.  The advertising for some secured cards use language like "...reported just like a real card..." but in truth, they use a special numbering system that FICO recognizes as secured.  FAKOs don't care.

 

EVERY book I have read on credit repair states that a secured card can help you rebuild credit.  I have friends and relatives who have secured cards and their credit scores have gone up quite a bit since they got these cards.

 

Most people who are trying to rebuild their credit would have little chance of getting an unsecured credit card.

 

The BEST secured cards are offered by credit unions.

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Again, sorry, but if were legally allowed to claim any insider knowledge of such things, I would point out that "secured" credit cards are recognized as such by the FICO scoring algorithms and have little positive effect on anything other than the FICO Bank Card Score (the "sucker score").  In fact, secured cards have a negative effect on all the other FICO scores.

 

Secured cards DO cause FAKOs to rise...but nobody who's going to lend you money looks at those.

 

This is one of those instances where the banks have found yet another way to make money from desparate consumers.  They charge you a fee to hold on to your money and then charge the merchants a fee for accepting the card and you another fee if you carry a balance.

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The bottom line here is the fact tr31 got an unsecured card so he should cancel the secured card - get the deposit back - and put that money to better use.  Even if his score drops a bit at first, having and using his unsecured card will boost his score up relatively quickly.

 

@tr31 - just make sure you don't rack up the balance on that unsecured card - keep a small balance but do use it and make sure to pay on it - timely - every month.  That will help your score.

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The bottom line here is the fact tr31 got an unsecured card so he should cancel the secured card - get the deposit back - and put that money to better use.  Even if his score drops a bit at first, having and using his unsecured card will boost his score up relatively quickly.

 

@tr31 - just make sure you don't rack up the balance on that unsecured card - keep a small balance but do use it and make sure to pay on it - timely - every month.  That will help your score.

 

Agreed.  Except that keeping a small balance (i.e., "utilization") really only helps the sucker score.  All the other FICO algorithms would rather see a $0 balance.

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  • 4 months later...

Cancelling the secured card will cause it to fall off your credit reports in about 7 years which will cause your oldest account (assuming it's this card) and your AAoA to fall as well. That being said you've tying up capital having the card open and it's not something that is going to greatly harm your credit in the long run, so you might as well cancel it. 

 

@willingtocope, please show me some evidence that closing a secured card causes a FICO score to increase. 

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@doctorofcredit I cannot legally claim to have evidence that closing a secured card bumps a FICO score.  All I can do is point out that the FICO Consumer Score (the one we are allowed to see) is closest to the FICO Bank Card score (the "sucker score") which CC issuers use to determine who they will make money on.  Even though the bank has your deposit for a secured card, they stand to make more money by charging high interest and penalties on unsecured cards...therefore, the sucker score rises...slightly.

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how does credit score affect when you are near maxed out and do make very timely payments but have only like 50 dollars left off the credit limit? Is that a very bad thing?

i m talking abt utilization? when exactly after paying it off and not using it for like 3-4 months  with nearly zero balance does it boost scores back again?

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how does credit score affect when you are near maxed out and do make very timely payments but have only like 50 dollars left off the credit limit? Is that a very bad thing?

i m talking abt utilization? when exactly after paying it off and not using it for like 3-4 months  with nearly zero balance does it boost scores back again?

 

The sucker score likes utilization around 30% of available credit.   That's the sweet spot...CC companies are fairly confident you'll continue to pay them interest, but aren't to likely to default.

 

Go above that and your sucker score will drop slightly, but, you'll probably get approved for other credit cards...they want in on the action.  Go below 30% and your sucker score may rise, but you might not get approved for other cards.

 

Pay it off...and your sucker score will reflect your other debt obligations...house, car, etc...which means it might go either way.  But, your FICO Mortgage scores will likely rise, assuming you have no significant dings.

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