How to Graduate From a Secured Credit Card in Canada

By Julien Brault, founder of MooseMoney.

A secured credit card has done its job once your credit score reach 680 and you can qualify for a standard unsecured card. At that point, you apply for an unsecured card, get approved, and then decide whether to close the secured account to recover your deposit. The whole process typically takes 12 to 24 months of responsible use, though individual timelines vary depending on your starting point and how consistently you manage the account.

Richard Godyer, Chief Credit Risk Officer at Neo Financial, put a specific number on it. "You can start thinking of graduating from your secured card when your credit score is 680 or higher," noted Godyer.

What to Do Before You Apply for an Unsecured Card

The habits you build while holding a secured card are what ultimately qualify you for graduation. Focus on these concrete actions.

Pay every bill on time, every month. Payment history is the single most influential factor in your credit score, accounting for roughly 35% of the calculation used by both Equifax and TransUnion. Setting up automatic payments through your bank's chequing account or enabling payment reminders through your card issuer can help you avoid missed due dates.

Keep your credit utilization low. Try to use no more than 30% of your available credit limit at any given time, and paying your statement balance in full each month is even better. If your secured card has a $500 limit, that means keeping your balance below $150 when the statement closes.

Give it time. Most issuers and credit experts suggest at least 12 months of consistent, responsible use before your score improves enough to make you a strong candidate for an unsecured product.

How to Actually Make the Switch

The graduation process differs by issuer. Some companies automatically review your account periodically and may invite you to transition. Others require you to take the initiative.

If you hold a Secured Neo Mastercard, the path involves applying for a separate unsecured Neo card once your credit profile has strengthened. "When you get to the stage where you think your credit score is strong enough, you can graduate to a fully unsecured card by applying for another Neo card. If the credit limit of this new card fits your needs, you can choose at that point to close the secured card, so you can get your security deposit back," explained Richard Godyer, Chief Credit Risk Officer at Neo Financial.

Regardless of the issuer, you should check your credit score through a free tool like Borrowell or Credit Karma before applying, so you know where you stand.

What to Do With Your Old Secured Card

Once you are approved for an unsecured card, you face a decision about the secured account. Closing it means you get your security deposit back, which frees up that cash. However, closing a credit account reduces your total available credit, which can temporarily raise your utilization ratio and shorten your average account age. Both of these factors can nudge your score downward in the short term.

If you do not need the deposit money urgently, keeping it open for a while longer can help cushion your credit profile during the transition. If you want the deposit returned, closing it after your new unsecured card is active and in good standing is a reasonable move.