Getting a credit card

How Do Secured Credit Cards Work? contents
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How Do Secured Credit Cards Work?

8 min read
Last Updated: December 17, 2025
Getting a credit card

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Key Takeaways

  1. A secured credit card works like a traditional credit card – it offers you a line of credit that you may use and repay monthly.

  2. Typically, a secured credit card requires a refundable security deposit as collateral for the credit limit.

  3. As long as the secured credit card issuer reports your activity to a major credit bureau, secured cards may help you build credit history.

If you’re looking for a new credit card but have a limited credit history or a lower credit score than you’d like, a secured credit card may be a good fit. To open a secured credit card account, you have to provide the bank, credit union, or credit card issuer with a refundable security deposit, which backs your credit limit.

Whether past financial challenges have left you with a less-than-ideal credit score or you’re just starting your credit journey, a secured card may help you build a positive credit history. Understanding how a secured credit card works and what makes it different from an unsecured credit card may help you determine whether it can help you reach your financial goals.

How does a secured credit card work?

For the most part, secured credit cards work like traditional, or unsecured, credit cards. Both traditional credit cards and secured credit cards give you access to a credit line that you may use as needed, up to a certain credit limit. Both types of credit cards require minimum monthly payments if you carry a balance, and both typically impact your credit score. The primary difference between a secured card and an unsecured card is that only secured cards require a security deposit.

 

Often, a secured credit card acts as a stepping stone to a more positive credit history and an unsecured credit card with a higher credit limit. The path from a secured to an unsecured credit card may look a little different for everyone, but it generally follows the same steps.

Apply for a secured card

You may be able to apply for a secured credit card online, over the phone, by mail, or in person. The application process may take only a few minutes. You’ll typically have to provide information like your legal name and birthdate, Social Security number, employer, and income level.

 

Because the security deposit protects card issuers from losing too much money in the case of non-payment, secured credit cards generally require less credit history than other credit cards. For example, there’s no credit score required to apply for a Discover it® Secured Card.1

 

While it’s often easier to qualify for a secured credit card than an unsecured card, approval isn’t guaranteed. If your application for a secured card is denied, you might consider becoming an authorized user on a trusted friend or family member’s credit card account to build positive credit history first.

Make a refundable deposit

If the secured credit card issuer approves your application, you may receive an offer with a maximum credit limit. To open your account, you provide a security deposit of that amount or less. If the security deposit you provide is less than the maximum credit limit, however, your credit limit may be reduced. With Discover, your credit line will equal your deposit amount, starting at $200.2

If your credit card issuer approves your application for a secured credit card with a credit limit of up to $400, but you only pay a $200 deposit, your new credit limit would equal $200.

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Use your card responsibly

Once you’ve received your secured card, you may make purchases like you would with any other credit card. Generally, you may use your secured credit card anywhere you could use a regular credit card. So, you might use it to shop at your favorite stores online or in person, fill up your tank, or go out to eat.

 

Some secured cards may even offer rewards on everyday purchases. For example, with a secured credit card from Discover®, you’ll earn 2% Cashback Bonus® at gas stations and restaurants on up to $1,000 in combined purchases each quarter, automatically. Plus earn unlimited 1% cash back on all other purchases.3

Make payments

You receive your credit card statement and monthly bill at the end of each billing period. You must make at least the minimum monthly payment by the due date. Your payment history has a major influence on your credit score, so your secured credit card payments may play a significant role in improving or establishing your credit.

Build credit history

Your secured credit card may build credit history as long as the credit card company reports your activity to a major credit bureau. Each credit bureau uses data from lenders about your spending, payments, and balances to create a credit report, which is the basis for your credit score.

 

Using your secured card irresponsibly may hurt your credit score. But using your secured card wisely, by keeping your balance low and paying your bill on time every month, may give your credit history the help it needs.

Graduate to an unsecured card

Certain card issuers may offer you a direct path from a secured card to an unsecured card with a higher credit limit if you’ve demonstrated that you can manage credit responsibly.

 

Once you’ve proven you can manage credit responsibly, your card issuer may offer you a new unsecured card or upgrade your existing card to an unsecured account. Depending on the credit card company, you may have to close your secured credit card account and apply for an unsecured card separately.

Receive your deposit back

When it’s time to move from a secured credit card to an unsecured credit card, you usually receive your deposit back (as long as you’ve repaid your balance in full). With a secured card from Discover, you may get your deposit back after six consecutive months of on-time payments and maintaining good status on all your credit accounts.4

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Tips for building credit with a secured credit card

A secured credit card may help you on your way to a good credit history, but you have to use your card wisely to get there. The following tips may help you use your secured card as a credit builder.

Make small purchases you can pay off each month

To build credit history without overspending, consider using your credit card regularly but keeping your balance low enough to pay off every billing period.

 

For example, you might use your credit card only for a few small recurring purchases, like weekly groceries or a streaming service subscription. Keep the purchases well within your budget and pay them off completely each month to enjoy the benefits of building credit without paying interest or adding to your credit card debt.

Pay on time, and more than the minimum

While making your minimum payment on time is one essential element to a healthy credit score, upping that payment each month has added benefits.

 

The lower your balance is, the lower something called, your credit utilization ratio is. Your credit utilization ratio is the percentage of available credit you’re using at a given time, and it’s an important part of your credit score. Keeping your credit utilization low is better for your credit history.

 

Repaying your entire balance in full each month may also help you avoid interest charges that increase your debt. Minimizing interest may also help you make the most of your rewards, as interest charges may cut into the cash back you earn.

Did you know?

With a secured credit card, or any other card from Discover, you get Cashback Match. We’ll automatically match all the cash back you’ve earned on your credit card at the end of your first year. There is no limit to how much we’ll match.6

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Set payment alerts for your secured credit card

Even the most organized person may forget a payment now and then. But when you’re trying to build, or rebuild, your credit, one missed payment is too many. Fortunately, payment alerts may remind you of your credit card bill before it’s too late.

 

Your card issuer, bank, or credit union may allow you to set alerts using your online banking portal or mobile banking app. You may also want to put due dates on your calendar and set bill reminders on your phone.

Enroll your secured credit card in autopay

For a more hands-off way to stay on top of your credit card bill, consider setting up automatic payments. If autopay is active, your credit card issuer automatically deducts a payment from your checking account each month. You might set autopay to withdraw the monthly minimum payment, the full balance, or any amount in between.

 

You may be able to enroll in autopay by connecting your debit card or bank account to your credit card account through your online banking or mobile banking tools, or over the phone. Just make sure you consistently have enough money in the linked checking account to cover your monthly bill. Otherwise, you risk overdrawing your account.

The bottom line

If you want to establish a credit history for the first time or rebuild your credit history after a financial setback, a secured credit card may be the right tool for the job. Your security deposit reduces the risk for the lender, making the card easier to qualify for if you have a limited credit history or a poor credit score. And many secured cards have smaller credit limits, which may protect you from accumulating too much credit card debt. As with any credit card, positive habits are the key to positive outcomes, like a good credit score and access to unsecured cards with great rewards.

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