Skipped Payments May Limit Secured Card Upgrade Options

Pandemic-related deferrals or job loss may put new accounts out of reach

Couple sitting at kitchen table reviewing credit report


It may be harder for secured credit card-holders to upgrade to a more traditional unsecured card right now, especially if they have recent payment deferrals on their records. 

As consumers and the economy continue to reel from the impact of the coronavirus pandemic, credit card issuers are even more mindful of cardholder payment histories, ability to pay, and credit scores, credit experts say. Borrowers—especially those new to credit or rebuilding their profile—eager for an account upgrade or a totally new card may have a high approval bar to clear before they can move on from a low-limit card backed up by a security deposit. 

“You may not have the same experience you would have had a year and a half ago when you contact your creditor and try to negotiate account terms,” said Bruce McClary, senior vice president of communications for the National Foundation for Credit Counseling (NFCC). “So it’s even more important to assess where you are at, as an individual, before making that call.”

Key Takeaways

  • Card issuers may be less likely to grant card upgrades or approve new accounts for credit builders who requested payment assistance during the pandemic, even if their accounts are technically current. 
  • A consumer’s ability to repay debt accrued to a credit card is even more important to issuers now, as unemployment rates remain elevated. 
  • While average credit scores are higher, experts worry those numbers may be temporarily inflated thanks to stimulus checks and pandemic payment assistance programs.
  • Additional hurdles may exist for credit builders with secured cards, even as lending standards have eased.

Deferred Payment Records May Sting

Since last spring, major credit issuers have offered financial assistance options to borrowers struggling to make their monthly payments. One common relief measure was payment deferment or forbearance, which meant cardholders could skip minimum payments without a fee or late payment flag on their credit reports. 

However, even though credit card accounts may be reported as current, temporary payment assistance deferrals could still make it more difficult for anyone who has gone through hardships in the past year—but especially secured cardholders—to qualify for more flexible credit in the near future. 

“Mortgage deferments that were part of the CARES Act have special provisions for how those forbearances are treated on a credit report, so it shouldn’t count against those consumers,” said Cris deRitis, deputy chief economist at Moody’s Analytics. “But other account deferments could have some interpretation by different lenders.”

While pandemic payment relief options can help protect cardholder credit histories long term, banks can still use their detailed customer account records to make card upgrade and application approval decisions.

“For instance, if you are with a particular issuer and you want to upgrade your card and there is a history of inability to repay or a struggle to repay, that could affect your ability to upgrade to a different product right now,” said John Cabell, director of banking and payments intelligence for J.D. Power. 

Deferment records may be more impactful if you are trying to change cards with the same bank, which will have detailed information about your account activity. You may have better luck going to a new card company. “If you took deferment, but are now making payments, and are looking at a product from a completely different issuer, that shouldn’t be a showstopper,” Cabell added.

Employment or Income Changes Indicate Instability

Even under more normal circumstances, banks want to make sure cardholders who request an upgrade from a secured card or apply for a new card have a way to repay any debt they may accumulate. During a time of high unemployment rates and ongoing economic uncertainty, cardholder-reported income and employment information may carry even more weight. 

“If you have recently gone through job loss or have reduced income, that would play a role in their decision,” said Rod Griffin, senior director of public education and advocacy for Experian. “You need to be able to demonstrate that your income and work position are stable.” 

Inflated Credit Scores May Not Show Long-Term Gains

Experian’s latest State of Credit report found that the average credit score has actually increased during the pandemic, rising to 688 in 2020 (a six point increase from 2019). Average card balances, credit utilization ratios, and delinquency rates are also lower than they were before the pandemic began, all important factors in card issuer lending decisions. 

However, lenders may tread carefully when it comes to recent credit score improvement in particular. It’s possible that some consumer credit scores are higher thanks to stimulus checks used to pay down debt and to reduce card spending during the pandemic. Months of payment assistance could add a temporary rosy glow to a credit score, too.

“A concern might be that maybe someone’s credit score went from 680 to 720 over the last year because they were under deferment. So there is a bit of credit score inflation going on,” deRitis said. “Once more deferments go away, will borrowers go back to missing payments or other behaviors, or have they really improved?” 

Recent earning reports from major card issuers including Wells Fargo, Bank of America, and Discover show that fewer cardholders are taking deferment than earlier in the pandemic without falling behind on payments—delinquency rates are still below 2019 levels.

It takes months for card accounts to fall into serious delinquency, so the credit experts we interviewed say time will tell if those delinquency rates will hold, or if they’ll trend upward as holiday spending comes due. 

Card Issuers Want Responsible Cardholders

If you’re itching to move on from a secured credit card after using it to build up your credit history and score, don’t let the pandemic completely deter you. It’s not a bad time to request an upgrade to an unsecured card or apply for another, so as long as your income and payment history are sound. 

“COVID is a huge, frustrating downer, but the credit marketplace is actually looking pretty advantageous for people who are in a good position to apply for credit,” said Experian’s Griffin.

Payment history and credit utilization are still the top two factors a credit card issuer will look at when evaluating an application, according to some credit counselors. If you pay off your secured card in full each month, have a sparkling payment history, and a good credit score (670 or higher, based on FICO standards), you’re in a good position to ask for an upgrade. 

Economists say consumers should be mindful of, but not totally discouraged by, the current lending environment. The latest Federal Reserve survey of banks’ lending practices found that 26% of card-issuing banks have been more careful lately—significantly higher than pre-pandemic levels. Still, it’s an improvement from the steep 72% that reported tight lending conditions last summer. 

“Lenders are dipping their toe back in the water, so to speak, but to their best customers,” said Moody’s deRitis. “So if consumers are in the right situation, they should definitely take the time to improve their credit portfolio.” 

Amid Many Unknowns, Focus On What’s Best For You

Since the factors that make up a consumer’s credit history are so varied—and now even more so, thanks to the pandemic—it’s even more important that consumers review their credit before seeking an account upgrade or applying for a new credit card. 

“The first step is to pull a copy of your credit report that includes your credit score to see where you stand,” said NFCC’s McClary. “If you are someone who is using secured lines of credit to rebuild or establish your credit health, hopefully the activity on those accounts has your credit score [moving] upward. Once you know where things stand, you can enter a conversation with your creditor about what your options might be.”

If your request for a secured card upgrade or a new card application is denied, find out why. Lenders are required to give you an adverse action notice, which includes the “why” behind their decision, including the credit score they pulled, and the main credit report data points working against you. That information can give you direction about what to do next. 

“Don’t be discouraged by a denial,” Griffin said. “I’ve been denied in the past, too. You can learn and grow from it. Arm yourself with data because that’s what lenders will always do.”