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What Is a Secured Credit Card?

Last Updated: January 28, 2022
3 min read

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.

A secured credit card is a card that requires the cardholder to secure the account with a deposit equal to the amount of the account’s credit limit. If you don’t pay your credit card balance, the credit card issuer will keep your deposit.

How Does a Secured Credit Card Work?

A secured credit card allows you to make purchases within a credit limit in exchange for a security deposit up front.

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 Discover it® secured credit card is a real credit card, not a debit or prepaid card. Using your Discover secured credit card will build a credit history with the three major credit bureaus. If you use your secured card and other loans responsibly, you can build positive credit history. Late or missed payments on your credit card accounts and loans may adversely impact your credit. Start by charging small and manageable amounts and pay every bill on time and in full.

Does a Secured Card Work Differently From Prepaid Cards and Debit Cards?

Secured credit 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. With prepaid and debit cards, 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. Your on-time monthly payments are separate from the money you put down initially.

Whereas most prepaid and debit cards generally do not report to credit bureaus, many secured credit cards do. This is why they are an attractive way to build credit a credit history — your responsible use counts for something.

And 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 restaurants and gas stations on up to $1,000 in combined purchases each quarter.1 Plus one percent cash back on all other credit card purchases. Discover will provide an unlimited dollar-for-dollar match of all the cash back you’ve earned at the end of your first year on your credit card.2

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. Discover starts monthly reviews 7 months after you open your secured credit card account.3 After 7 months, Discover begins automatic monthly account reviews to see if you qualify to upgrade to an ‘unsecured’ card and get your deposit back.4

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