If you are new to the world of credit, if you have no credit or limited credit, or if you are rebuilding your financial life after a bankruptcy or financial setback, a secured credit card may be a good option to help you build credit history and create a stronger financial foundation for your future.

A secured credit card works like a regular credit card, but with one main difference: Your credit card account is “secured” by a refundable cash deposit that you give to the credit card issuer upfront. Instead of having a credit limit based on your projected ability to repay what you borrow, a secured credit card limits your borrowing to the amount of your cash deposit. This helps you stay on track with your overall financial goals by not using more credit than you can handle.

Secured credit cards may help you manage your monthly spending while also helping you establish a positive credit history when you pay your bills on time. And, beyond the short-term benefits of having a credit card account in your name, using a secured credit card can help you work toward bigger financial goals.

1. Build Credit to Qualify for Lower-Interest Car Loans

If you have no credit history, or if you are rebuilding your credit, you may be concerned about getting approved for a car loan.

According to Experian, although there are no across-the-board limits on what is the minimum credit score you need in order to get approved for a car loan, one of the most important things someone can do to improve their credit score is to pay all accounts on time. In addition, paying down account balances and keeping revolving account balances low can also play a key role in improving credit scores.

Getting a secured credit card can be helpful on both of these fronts. Having a secured credit card gives you a revolving account (a monthly credit account) that you can use and pay off regularly to help build a positive credit history. Depending on your finances and the amount of security deposit that you can afford for your secured card, you can use your secured credit card to pay other monthly bills (and then pay off the credit card by the time the balance is due). This can help you manage your monthly cash flow, pay bills on time and build up a history of managing your credit responsibly.

All of these benefits of using your secured credit card may help you qualify for a more favorable car loan in the future — or potentially help you refinance your current car loan at a lower interest rate.

2. Build Credit to Qualify for a Mortgage

If you are currently renting and want to buy your own home, a secured credit card can also be helpful for the long-term goal of getting approved for a mortgage: Establish a proven track record of paying bills on time, manage your credit utilization ratio and check your credit report regularly to correct any errors or inaccuracies.

According to The Balance, to determine your credit utilization ratio, divide your current credit card balance by your credit limit and multiply that number by 100. Experian recommends keeping your credit utilization ratio below 30 percent.

3. Save Money for a Rainy Day

Saving up for a security deposit for your secured credit card can be part of your overall emergency savings plans. If you are starting out with no credit history or limited credit, you may find that it feels surprisingly empowering to be able to save that first $200 or $500 to put toward your refundable deposit on a secured credit card.

“Even with a small credit limit, a secured credit card can be an effective tool to add positive credit history,” says Bola Sokunbi, Certified Financial Education Instructor, and CEO and founder of Clever Girl Finance. “Building an emergency fund, though, should remain a top priority. If an emergency were to arise, this cushion will help someone avoid exhausting their credit limit or falling behind on payments.”

Having an emergency fund can help you stay financially stable in the face of unexpected setbacks. At the same time, your secured credit card can help you maintain the financial discipline to manage your money smarter, and build up savings along the way.

4. Get Cash Back Rewards

Along with building credit and helping you manage your monthly bills, what if your secured credit card could also give you money back on everyday purchases? The Discover it® Secured card delivers cash back rewards just like other unsecured credit cards.

With a secured credit card from Discover, you’ll get 2 percent cash back on up to $1,000 of spending at gas stations and restaurants each quarter, 1 percent unlimited cash back on all other purchases, and a full Cashback Match™ of all the cash back rewards you’ve earned during your first year of having the card.*

Put this extra money toward your emergency savings fund, or add it to your savings for a down payment on a car or a home.

5. Qualify for an Unsecured Credit Card

Another advantage of a secured credit card is that it can help you build financial muscle for the future by helping you qualify for an unsecured credit card with a higher credit limit. When you open a Discover it® Secured credit card account, Discover will regularly evaluate your account starting at eight months and, if you manage your credit responsibly, you may qualify to “graduate” from a secured card and get your refundable cash deposit back — while still enjoying all the benefits of having your card.

Keep in mind that simply having a secured credit card is no guarantee that you will be able to achieve a specific increase in your credit score or qualify for a home mortgage loan; you still need to manage your money responsibly and show that you are a good credit risk over time. Discover’s reviews are based on responsible credit management across all of your cards and loans.**

However, a secured credit card can be an important and valuable tool in establishing credit and building credit. Getting a secured credit card can be the start of improving your financial life in many important areas — from managing your monthly spending to one day moving into the home of your dreams.


* Cashback Match™: No purchase minimums. After the first 12 consecutive billing periods that your new account is open, we will match all of the cash back rewards you’ve earned and apply them to your account in the following one or two billing periods. If your account is closed or no longer in the cash back reward program at the time we calculate your potential award, your cash back will not be matched. You’ve earned cash back rewards when they have posted to your account by the end of the 12th consecutive billing period. This promotional offer may not be offered in the future. This exclusive offer is available only to new cardmembers.

You earn a full 2% Cashback Bonus on your first $1000 in combined gas and restaurant purchases each calendar quarter. Calendar quarters are defined as the three-month periods beginning January 1, April 1, July 1, and October 1. Gas and restaurant category purchases over the quarterly cap, and all other purchases, earn 1% cash back. Gas and restaurant purchases are those made at merchants classified as gas stations and full service restaurants, cafes, cafeterias and fast-food locations. Purchases coded in categories other than these, including purchases made at warehouse clubs, wholesale distributors, and discount stores, will not qualify. Purchases made using third-party payment accounts, tap-and-pay, mobile or wireless card readers, virtual wallets or similar technology may not be eligible. Rewards are added to your Cashback Bonus account within 2 billing periods.

**Loan approval is subject to confirmation that your income, debt-to-income ratio, credit history and application information meet all requirements. Loans are unsecured. Loans are fully amortizing personal loans as long as you pay on time.

You must have a minimum household income of $25,000 to be considered for a Discover personal loan. A Discover Personal Loan cannot be used to pay for post-secondary education or to pay off a secured loan.

Your APR will be between 6.99% and 24.99% based on creditworthiness at time of application for loan terms of 36-84 months. Our lowest rates are available to consumers with the best credit. Many factors are used to determine your rate, such as your credit history, application information and the term you select.

We may charge a fee if your payment is late.

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.