Often, in order to get credit, you have to have credit — or at least a history of responsible borrowing. This can be a frustrating realization for people new to the country. After all, you may have spent years building credit in your previous home. The same frustrations may apply to young people who’ve never held a credit card before, or people trying to rebuild their credit after financial missteps.

Luckily, there is a stepping stone toward a credit card in your own name. This is a secured credit card, like the Discover it® Secured card, which can be a smart tool to prove responsibility to potential creditors.

What Is a Secured Credit Card?

Think of a secured credit card like a safety net that helps protect you and your bank. Your bank wants to ensure that you won’t default on your card payments. And you may want to make sure you don’t spend more than you have. Unlike a traditional credit card, which allows people to spend up to the credit limit on the card, a secured credit card uses your own money to “secure” any charges. That way, the creditor is ensured that they won’t lose money — and you’ll be able to practice using a card responsibly without going into debt.

The amount you put on a secured credit card may be $200, $500 or more. The Discover it® Secured card has a $2,500 limit.1 Each month, you can spend up to that limit and you’ll be expected to pay back any charges. Let’s say you have a secured credit card with a $200 limit. To activate the card, you’ll put down $200. Spend $15 in the first month? Then you’ll owe $15 on that statement. There may be a minimum payment, and if you choose that option, you’ll still pay interest on the outstanding balance. The deposit you made to open the card isn’t used to cover your monthly bills; it’s there just in case you need to take money from your deposit when you close your account, or in the event you fail to pay your bills. But remember, “secured” doesn’t mean “responsibility free” — failure to pay your bills may lead to a drop in your credit score.

Once your credit card company deems you responsible, they may change the card to an unsecured card and return your $200 deposit. For example, if you have a Discover it® Secured card, Discover will begin reviewing your credit behavior monthly after eight months. If you can demonstrate a pattern of responsible credit, they may return your deposit, and your card becomes unsecured, up to the limit on your agreement.2

Smart Ways to Build Credit With a Secured Credit Card

If you’re new to the country, you can apply for a secured credit card if you’re over 18 years old, have a US bank account, Social Security Number, and a US address. Once your application is approved, you may be wondering how to best use your secured card. Here are smart strategies to build credit with a secured credit card.

1. Immediately set up autopay

Your credit card company is looking for responsible credit behavior. A key factor is paying bills on time. To make sure you do so — and prevent a crazy busy month from throwing you off track — consider setting up auto-pay on the account, either to pay the balance in full each month or to at least make sure the minimum is covered.

2. Keep monthly usage low

Just because you have a $1,000 limit on your credit card doesn’t mean you should spend to that level — even if you can pay the balance in full each month. That’s because your credit history depends in part on your credit utilization ratio, or the amount of debt you have relative to credit. If you always spend to the limit, not only can it tough to pay the bill each month, but it could also negatively impact your credit score.

3. Use your card for monthly bills

From rent to utilities, there are a number of charges you pay each month. To help build credit, it may be a good idea to start with a bill you’re already paying with your debit card — perhaps a streaming service or your cell phone. This way, you know you have the money to cover the charge, and you know exactly how much is billed on the card each month.

4. Check (and pay) your balance each week

Even if you’re enrolled in autopay, it’s smart to make a habit of regularly checking your balance, to make sure there are no erroneous charges and to make sure you know exactly how much credit you have available on the card. If you can, consider making payments when you check your balance. You may not have enough funds to cover it all, but keeping your balance as low as possible throughout the month keeps your credit utilization ratio low.

5. Consider increasing your limit

It may be possible to add an additional deposit to your secured card to increase your spending limit. This can be a good idea for two reasons: First, it allows you to feel comfortable charging larger amounts on your card, and second, it can help lower your credit utilization ratio — thereby potentially increasing your credit score over time.

6. Use your card for online purchases

If you frequently purchase goods online, it may be a smart move to switch those purchases from your debit card to your secured credit card to help protect you against fraud. A secured card like the Discover it® Secured card has anti-fraud features that will help protect you if unauthorized purchases are made or if your card number is stolen.

7. Optimize your rewards

One huge advantage of using a secured credit card like the Discover it® Secured card is the opportunity to take advantage of credit card rewards perks and points. For example, the Discover it® Secured card offers 2 percent cash back at gas stations and restaurants for up to $1,000 a quarter, as well as 1 percent cash back on all other purchases. With this in mind, it may make sense to designate your secured card as your “gas” card and use it whenever you fill up the tank.

8. Use a budgeting system

Using credit — as opposed to relying solely on debit — can be an adjustment for some people. It may be a good idea to create a budgeting system or download a budgeting app that can help you track your spending, so you get used to earmarking money for your credit card bill at the end of the month. Some people keep a budget on a sticky note; others need apps and reminders. There’s no wrong system, and the best one is whatever works to keep you on track.

Keep Up Those Good Credit Habits

A secured credit card can teach you smart card usage — but once you get your deposit back, it’s even more important to maintain responsible spending habits. It can also be a good stepping stone when you’re new to the country to help you build credit in the US. Whether you’re new to the country, or simply new to credit usage, the strategies for smart use remain the same. Paying on time each month, paying in full, and making sure you never spend more than you have can ensure that the credit score you’ve worked so hard to build stays in great shape.

 

1 – Minimum Security Deposit: A minimum security deposit of $200 is required to open this account and your security deposit must equal your credit limit. Your maximum credit limit (up to $2,500) will be determined by your income and ability to pay. Discover refunds deposits two ways: 1) automatic monthly reviews starting at eight months to see if your account qualifies to “graduate” after showing responsible use of all your credit over time, or 2) when you close your account and pay in full we will return the security deposit to you, which can take up to two billing cycles plus ten days. See other issuers’ websites for their details.

2 – Discover refunds deposits two ways: 1) automatic monthly reviews starting at eight months to see if your account qualifies to “graduate” after showing responsible use of all your credit over time, or 2) when you close your account and pay in full we will return the security deposit to you, which can take up to two billing cycles plus ten days. See other issuers’ websites for their details.

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.