Unlike traditional credit cards, a secured credit card requires a security deposit held as collateral against the charges you make. Both traditional credit cards and secured credit cards extend a line of credit based on your income, creditworthiness and other factors.

Secured credit cards are popular with people looking to build a credit history. The deposit is designed to reduce the risk of non-payment to the credit card company, so they’re often willing to issue a card to applicants who might otherwise be denied. Then, just as they would for a traditional credit card, the issuer reports your activity to the credit bureaus, giving you the chance to build a credit history.

With responsible use, you might be able to parlay your secured credit card into an unsecured credit card. The credit history you build along the way can open the door to previously unattainable lines of credit, like a car loan or a mortgage.

Read on to learn how to use a secured credit card, including tips for building credit with a secured credit card and establishing healthy credit while avoiding common mistakes.

1. Understand Credit and Why It Matters

2. How to Use a Secured Credit Card to Build Credit

3. Smart Spending and Payments Help in Building Credit with a Secured Credit Card

4. Develop Healthy Habits With Your Secured Credit Card

5. Graduate From Your Secured Card to an Unsecured Card

1. Understand Credit and Why It Matters

Knowing how the credit system works may help keep you motivated, so let’s be clear: credit history and credit scores in top shape could save you thousands of dollars over the course of your lifetime. The better your credit, the less of a risk you carry for lenders and card issuers. You may get more favorable interest rates and higher credit or loan limits. A secured credit card may help you on this path.

Credit reports come from three major bureaus: Experian, Equifax and TransUnion. Under federal law, you are entitled to a free copy of your report from each of these bureaus; during the COVID pandemic it’s available weekly. You can also get free copies if you are denied credit or insurance as a result of what’s reported. Discover® offers both cardmembers and non-cardmembers the ability to get their FICO® Score for free*.

The reports list credit accounts you’ve opened and closed, their balances, and whether they’re in good standing. Reports may include negative information, such as accounts that haven’t been paid and accounts that have been sold to collection agencies. Credit reports may also include a section on “inquiries” or instances where you’ve authorized a creditor to look at your credit history. A large number of inquiries can be a red flag for creditors and factors into your credit score.

Your credit score is a three-digit number that is based on your credit history, and it helps creditors analyze the risks of lending you money. Typically, FICO® credit scores can range from 300-850. Utility bills, credit card applications, loan balances — all of these, and more, play into this history.

A perfect FICO® credit score of 850 is extremely rare and perhaps fleeting (the moment someone with an 850 score applies for credit, that score may drop because of an inquiry). The good news is, you don’t need to be perfect to be excellent. In fact, any score above 800 is considered exceptional. And any score  considered good.

So, how do you achieve a good score? You don’t want to carry too much debt, but at the same time, you need to have a track record of handling debt and bills smartly in order to prove you’re a safe bet for lenders. A secured credit card can help you purchase necessities now while building that credit history.

2. How to Use a Secured Credit Card to Build a Credit History

Unlike a typical credit card, a secured credit card requires you to provide a security deposit up front before you can borrow any money. Your credit limit will usually equal the amount of your security deposit, up to the amount that can be approved.

For example, the Discover it® Secured credit card lets you open an account with a refundable security deposit of as little as $200 or as much as $2,500. Your credit limit on the card is equal to your security deposit, up to the amount it can approve. So, upon approval, if you’ve put down a security deposit of $1,000, you can spend up to $1,000 with your new secured credit card. You can then build your credit with responsible use with your Discover it Secured credit card.* Using your secured credit card may also build a credit history with the three major credit bureaus. Generally, prepaid and debit cards can’t do that. 

Additionally, some secured credit cards offer cash back rewards. For example, with a secured credit card from Discover, you’ll get 2 percent cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter,* and 1 percent unlimited cash back on all other purchases. You also get Cashback Match: Discover matches all the cash back you’ve earned at the end of your first year of having the card*.

3. Smart Spending and Payments Help in Building Credit With a Secured Credit Card

A secured credit card can put you on the path toward building a credit history, but getting there requires using the card wisely. Here are five steps for using a secured credit card in responsible ways.

  • Make small purchases you can pay off each month.

    The point of using a secured credit card is to show your ability to responsibly charge and then pay off your balance. To do this, make a few purchases each month and pay your bill in full and on time. By not carrying a balance, you not only avoid paying interest on purchases, but are using a time-tested strategy for building credit.
  • 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. Among them: helping to pay off more of your balance, which can show that you are able to properly manage your money, and reducing your credit utilization ratio, or the amount you owe compared to your credit limit. Both are factors that affect your credit score.
  • Make multiple payments each month.

    Making more than one monthly payment can help keep your balance continually low. Even if you pay in full each month, you can’t be sure when your credit card issuer will send your report to the three credit agencies, and a large balance reduces your overall credit, which can negatively affect your credit score. You may also choose to send a payment after a heftier-than-normal purchase.
  • Set payment alerts for your secured credit card.

    Even the most organized person misses a payment now and then. But when you are trying to build credit, that’s one time too many. Avoid this scenario with payment alerts that remind you of your bill’s upcoming due date. You may choose to set up a “Payment Due” text alert with your issuer, or manually set a monthly “alarm” that notifies you a week before your bill is due.
  • Enroll your secured credit card in auto-pay.

    Still concerned about making your payment on time? Perhaps the easiest remedy is to enroll in auto-pay, which allows your issuer to automatically deduct the monthly balance from your bank account so you don’t have to keep track of bills.

4. Develop Healthy Habits With Your Secured Card

According to the Federal Reserve, in 2019, 48 percent of Americans with a credit card paid their bill in full every month in the prior year, while about one-quarter carried a balance once or some of the time in that year and the remaining one-quarter carried a balance most or all of the time. Learning to manage your credit card use based on your budget is key to making sure you can be one of the many Americans that does not carry a balance.

A secured credit card can also serve as a valuable training ground to learn which money management tools fit your financial personality. Prefer not to deal with paper statements, mail or even a physical wallet? Electronic account statements, online banking and mobile wallet apps may help you keep your financial life in order. Afraid that you’ll miss an electronic statement in a crowded email inbox, or don’t have consistent access to a computer or a secure WiFi connection? Then you may prefer paper statements, and a more traditional budgeting and payment system. When you understand what financial systems work for your life, you can better manage them.

5. Graduate From Your Secured Credit Card to an Unsecured Card

One goal once you are successfully using your secured credit card is to “graduate” to an unsecured credit card. Once you do, consider keeping up your financial health by moving the funds you originally used to secure the credit line on your secured credit card into an interest-bearing savings account that you contribute money to from each paycheck (even if you can only afford small amounts). You’ve worked hard to build a positive credit history, and should celebrate what you’ve achieved while continuing to plan for your financial future.

Published January 5, 2016.

Updated April 12, 2021.

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.

Credit Scorecard is provided by Discover Bank, and includes a FICO® Credit Score and other credit information. Credit Scorecard information is based on data from Experian and may differ from credit scores and credit information provided by other credit bureaus. This information is provided to you at no cost and with your consent. You must be 18 years old and a U.S. resident or a resident of America Samoa, Guam, Northern Mariana Islands, Puerto Rico or the Virgin Islands. Your Credit Scorecard will be refreshed the later of every 30-days or the next time you log in to Credit Scorecard. Discover and other lenders may use different inputs, such as a FICO® Credit Score, other credit scores and more information in credit decisions. This product may change or end in the future. FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.

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 $2500) will be determined by your income and ability to pay.

Builds credit with responsible use:: Discover reports your credit history to the three major credit bureaus so it can help build your credit if used responsibly. Late payments, delinquencies or other derogatory activity with your credit card accounts and loans may adversely impact your ability to build credit.

Cashback Match: We’ll match all the cash back rewards you’ve earned on your credit card from the day your new account is approved through your first 12 consecutive billing periods or 365 days, whichever is longer, and add it to your rewards account within two billing periods. You’ve earned cash back rewards only when they’re processed, which may be after the transaction date. We will not match: rewards that are processed after your match period ends; statement credits; rewards transfers from Discover checking or other deposit accounts; or rewards for accounts that are closed. This promotional offer may not be available in the future and is exclusively for new cardmembers. No purchase minimums.

Chrome Disclosure: You earn a full 2% Cashback Bonus® on your first $1000 in combined purchases at Gas Stations (stand-alone), and Restaurants each calendar quarter. Calendar quarters are defined as the three-month periods beginning January 1, April 1, July 1, and October 1. Purchases at Gas Stations and Restaurants over the quarterly cap, and all other purchases, earn 1% cash back. Purchases made at Gas Stations include only merchants in the category that sell automotive gasoline that can be paid for either at the pump or inside the station. Gas Stations affiliated with supermarkets and supercenters may not be eligible. Restaurant purchases include only those made at merchants classified as full-service restaurants, cafes, cafeterias and fast food locations. Certain digital wallet transactions qualify for 2% Cashback Bonus, for more information see Discover.com/digitalwallets. Purchases made through third-party payment accounts, mobile or wireless card readers, virtual wallets or similar technology will not be eligible if the technology does not provide sufficient transaction details for rewards qualification. 2% Cashback Categories: In accordance with standard industry practices, merchants are assigned a merchant category code (MCC) typically based on their line of business, or the type of products and/or services they primarily sell or provide. Discover Card does not assign MCCs to merchants. Even if you make purchases at a merchant of items that appear to fit in a rewards category, the merchant may not have an assigned MCC in that rewards category. Only purchases made from merchants located in the United States are eligible for 2% Cashback Bonus. In order for a purchase to qualify for the 2% Cashback Bonus Program, the transaction date must be before or on the last day of the offer or promotion. Rewards are added to your Cashback Bonus account within two billing periods. See Cashback Bonus  Program Terms and Conditions for more information about your rewards.