Secured Credit Card Myths and Realities

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 credit.

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.

Here are eight of the most common myths and realities about secured credit cards:

Myth 1: You Won’t Get Your Security Deposit Back; the Credit Card Company Keeps Your Money

Reality: The security deposit on your secured credit card is fully refundable — you will get your security deposit money back, 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.

With the Discover it® Secured card, you also will get your security deposit back once you “graduate” to an unsecured credit card. 

Myth 2: Secured Credit Cards Keep You “Stuck” With a Small 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, you can deposit up to $2,500, and can apply to increase your credit line by adding to your security deposit, until you’ve reached the maximum amount. There is also a possibility you’ll receive a higher credit limit on your card once you graduate to an unsecured card.

Myth 3: Your Security Deposit Costs More Than You Can Afford

Reality: Discover provides options for the amount of your security deposit, ranging from a minimum of $200 up to $2,500, depending on your income and your ability to pay.

Myth 4: Putting Money Down on a Secured Credit Card Security Deposit Is 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. Using credit responsibly across all of your credit cards and loans, including Discover and others, may qualify you to get your security deposit back. 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: The Discover it® Secured card is most definitely real — you can use it to pay for purchases anywhere that credit card payments are accepted, and we report 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 You Build Credit

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.

Myth 7: Secured Credit Cards Don’t Let You Have a Credit Score

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

For example, 99 percent of new Discover it Secured cardmembers who don’t have a FICO® Credit Score receive their score on their statement within nine months.

Myth 8: Secured Cards Don’t Give You Any Credit Card Rewards

Reality: While many 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 on the first $1,000 of all gas and restaurant purchases each quarter. Plus, you’ll get 1 percent unlimited cash back on all other purchases.

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 improve your financial life. 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.

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