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What Is a Secured Credit Card?

Last Updated: January 18, 2023
4 min read

Key points about: secured credit cards

  1. A secured credit card is a type of credit card that requires a security deposit to open.

  2. A secured credit card may be a good option for someone with bad credit or no credit history.

  3. The Discover it® Secured Card can help you build credit with responsible use.1

Poor credit or a nonexistent credit history can make it more difficult to be approved for a credit card. One option is to apply for a secured credit card.

But what is a secured credit card? Below, we’ll discuss what makes a secured credit card different than a regular unsecured credit card, and how you may be able to get one.

How does a secured credit card work?

A secured credit card is a card that requires the cardmember to secure the account with a deposit that will equal the account’s credit limit amount. For example, if you’ve been approved for a secured credit card and put down a $1,000 security deposit, your credit limit for the account is $1,000.

Secured credit cards work by allowing you to make purchases within your credit limit, just like a normal credit card. And like a regular credit card, there is a standard interest rate, or APR, on your purchases.

One of the main differences between secured cards and unsecured credit cards is what happens if you miss payments. For both types of cards, a missed payment can result in late fees or other penalties. However, if you don’t pay your secured card payment on time, the credit card issuer may use your security deposit to pay what is due, and they may close your account.

Apply for the card

Start by applying for the card. Getting the card isn’t guaranteed. Your application can be turned down.

Provide a security deposit

Once you’re approved for a secured credit card, you’ll need to provide a security deposit equal to the credit limit on your account.

Use your card responsibly

Your credit card company will report your account activity to one or more credit bureaus. Late or missed payments on your credit card accounts and loans may hurt your credit score and lead to poor credit. Using your card responsibly and paying every bill on time and in full by the due date, may help you build positive credit history.

Does a secured card work differently from a prepaid card or debit card?

Secured cards, prepaid cards, and debit cards all require account holders to provide funds before any purchases can be made, but that is essentially where the similarities end. A secured card is a credit card, not a debit or prepaid card.

With a prepaid card or debit card, the amount of each purchase is immediately subtracted from the balance of the account. But with a secured credit card, the money you put up–the refundable security deposit–is unaffected when you make a purchase and is not used to pay the account balance (unless you go into default or close your account with a balance). Rather, your charges will appear on your monthly statement with an amount due for that month, the same as a regular credit card. Your monthly payments are separate from the money you put down initially.

Whereas prepaid and debit cards don’t report to credit bureaus, many secured credit cards do. If your secured card issuer reports to one of the credit bureaus, secured cards can be an attractive way to build credit history–your responsible use counts for something.

That’s why it’s critical that secured credit card users pay at least the minimum amount due on time each month on all their loans.

How to get the most from your secured credit card

Apply to increase your credit line

If over time you find that you need a higher credit limit, you can apply for a credit line increase and add to your security deposit.

Choose a secured credit card with rewards

Unlike some secured credit cards, the Discover it® Secured Credit Card offers rewards on purchases. The card earns two percent cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, automatically.2 Plus one percent cash back on all other credit card purchases. Using discover credit card, get an unlimited dollar-for-dollar match of all the cash back you’ve earned at the end of your first year, automatically.3

Transition to a standard, unsecured credit card

Some secured credit card issuers will periodically review your account to see if you qualify for an unsecured card. With Discover, after 7 months, we begin automatic monthly account reviews to see if you qualify to upgrade to an ‘unsecured’ card and get your deposit back.4

If you don’t have good credit, or you’re seeking a credit card that can act as a credit builder, a secured credit card may be able to help. They work similarly to a traditional credit card, but to open the account, you must put down a security deposit. And depending on the credit card company, you may be able to graduate to an unsecured credit card with on-time payment history and responsible use of your card.

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