Secured Credit Cards: Credit Cards & Security Deposits

If you have no credit history, have limited credit, have less-than-perfect credit or have recently gone through financial problems, you might expect that you cannot qualify for a credit card. But many people, even if they have no credit or limited credit, can still get access to a credit card by applying for a secured credit card account.

This type of credit card is frequently misunderstood and sometimes people have concerns about whether this card is the right fit for their needs and goals. For example, many people who are considering applying for a secured credit card are concerned about how they will get their security deposit back. Others may wonder if a secured credit card is actually a “real” credit card that helps them build a credit history.

Don’t let misconceptions and unfounded concerns keep you from qualifying for a credit card. The truth is, secured credit cards may be a great option to help you establish credit and build your financial future.

Myth 1: Your credit card security deposit is nonrefundable

Reality: The security deposit on your secured credit card is fully refundable — you will get your security deposit money back if you close your account, so long as you pay your balance in full. If you cancel your account at any time and your balance is paid off, you will get a refund of your deposit, but the timing may vary from issuer to issuer.

Myth 2: You can’t increase your secured credit card’s credit limit

Reality: It’s true that, with a secured credit card, you start out being limited to charging up to the amount of your security deposit. However, you may be thinking that a secured card’s deposit can only be a few hundred dollars. That may not be the case. For example, with Discover, your credit line will equal your deposit amount, starting at $200 up to $2500.^** You can apply to increase your credit line, and if approved, you must then add to your security deposit

Myth 3: You can’t afford a credit card security deposit

Reality: Discover provides options for the amount of your security deposit depending on your income and your ability to pay. Your approved credit line will equal your deposit amount, starting at $200 up to $2500.^**

Myth 4: Credit card security deposits are bad for your savings

Reality: A secured credit card can help you build your savings by giving you a reachable savings goal of at least $200 for the security deposit. With Discover it Secured Credit Card, get your deposit back after six consecutive months of on-time payments and maintaining good status on all your credit accounts.³ Plus, you may find that using a secured credit card can make it easier for you to manage your overall monthly spending and establish good financial habits.

Myth 5: Secured cards are not “Real Credit Cards”

Reality: Sometimes people get secured credit cards confused with “prepaid cards” or debit cards. Unlike prepaid cards or debit cards, which just withdraw money from a pre-existing balance of funds, your secured credit card works the same as a credit card — and it helps you build your credit history when you use it responsibly and pay your bills on time.

The Discover it® Secured card is most definitely real — you can use it to pay for purchases anywhere that Discover is accepted, and Discover reports your payment history to the three major credit bureaus. While some secured cards charge an annual fee, with Discover, you’ll pay no annual fee for using the secured card, the same as for Discover’s unsecured cards.

Myth 6: Secured credit cards don’t help your credit score

Reality: Many people who do not have a credit history or do not have a credit score can establish and build a credit history for the first time by getting a secured credit card.

Myth 7: Secured cards don’t provide credit card rewards

Reality: While some secured credit cards don’t offer a rewards program, the Discover it® Secured credit card lets you earn rewards just like other Discover credit cards. You’ll earn 2 percent cash back rewards at gas stations and restaurants on up to $1000 in purchases each quarter.⁴ Plus, you’ll get 1 percent unlimited cash back on all other purchases.

How much will a secured credit card help your credit score?

As secured credit cards are usually used near the beginning of a person’s credit journey or as a means of improving your creditworthiness, there’s no exact number your score will minimally reach. Instead, with regular responsible use that is reported to credit bureaus, you can build credit with responsible use.^* From there, you may qualify for credit cards with higher limits that don’t need security deposits backing them.

Don’t let other people’s misunderstandings or misconceptions about secured credit cards hold you back. With a bit of research, you’ll see why secured credit cards can help you build a credit history. If you want to establish credit for the first time, or if you have not been able to qualify for a standard unsecured credit card, applying for a secured credit card may help you manage your spending and build a stronger financial future.