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How Do Secured Credit Cards Work?

7 min read
Published January 17, 2025
Getting a credit card

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Key Takeaways

  1. Typically, a secured credit card requires a refundable security deposit that’s used as collateral and generally represents the card’s credit limit.

  2. A secured credit card is one way to build a credit history.

  3. Your credit card issuer will likely report your secured credit card activity to credit bureaus, which may influence your credit score.

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. But how does a secured credit card work, and what makes it different from a traditional credit card?

 

Read on to learn how a secured credit card can work as a credit builder and for some tips on establishing a healthy credit history so that you may be able to graduate from a secured card to an unsecured credit card.

How does a secured credit card work?

Both traditional credit cards and secured credit cards  offer you access to a credit line that can help you build credit over time. But unlike a typical credit card, a secured credit card requires you to provide a cash deposit as collateral up front before you can begin using your card. Your credit limit usually equals the amount of your security deposit, up to the limit that your financial institution has approved.

The Discover it® Secured Credit Card requires a refundable security deposit, which will equal your credit line, of at least $2001 So, if you receive credit approval for $1,000 you can put down a security deposit of $1,000 and spend up to $1,000 with your new secured credit card.

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Secured cards can work well for people looking to build a credit history. The security deposit protects card issuers from losing much money in the case of non-payment. So, applicants with poor credit scores or limited credit history may have an easier time qualifying for a secured card than an unsecured card. Other than the security deposit, secured credit cards work like traditional cards. As you make purchases and pay your credit card bill, the issuer typically reports your activity to the credit bureaus, giving you the chance to build a credit history.

Typically, the credit limit on a secured card will be smaller than on a traditional credit card. While the smaller credit limit gives you less purchasing power, it can be a benefit for anybody learning how to manage credit responsibly, since it can help prevent you from accumulating too much credit card debt.

How a secured credit card works to build a credit history

When you use a regular credit card, your card issuer typically reports your activity to at least one major credit bureau–Experian ®, TransUnion ®, or Equifax ®. The credit bureau then uses that information to build your credit report, which is the basis for your credit scores. Establishing a good credit score can help you access the best credit card and personal loan options available.

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Unlike a prepaid card or debit card, a secured credit card can help you build credit history as long as your card issuer reports your activity to a credit bureau. You can then build your credit with responsible use3 Secured Credit Card, for example. Using your Discover secured card will build a credit history with the three major credit bureaus.

In addition to building credit history, some secured cards may earn rewards on your 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.4

Did you know?

With a secured credit card, or any other card from Discover, you also get Cashback Match: We’ll automatically match all the cash back you’ve earned at the end of your first year. There is no limit to how much we’ll match.5

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To make the most of your rewards, it’s important to use your secured card responsibly.

Steps to building credit with a secured credit card

A secured credit card can put you on the path toward building a good credit history, but you’ll have to use your card wisely to get there. Here are some steps you can take to responsibly use your secured card as a credit builder.

Make small purchases you can pay off each month

A secured credit card gives you the opportunity to show that you can use your card without accruing too much credit card debt. To do this, make a few purchases each month with your card, like groceries or gas. At the end of each month, repay the total amount you owe on your credit card account, not just the minimum payment that’s required.

Your credit utilization ratio – which refers to the total amount you owe compared to your available credit – influences your credit score. Using your credit card but keeping your credit utilization to a minimum is a time-tested strategy for avoiding interest charges and building credit history.

Pay on time, and more than the minimum

Your payment history accounts for a significant portion of your credit score, so it’s important to avoid missing payments or paying late. While making your minimum payment on time is one essential element to a healthy credit score, upping that payment each month has added benefits. Paying down your balance shows you can properly manage your money and avoid accruing significant credit card debt.

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. You can avoid this scenario with payment alerts that remind you of your bill’s upcoming due date. Your card issuer, bank, or credit union may allow you to set alerts in your online banking or mobile banking tool. Otherwise, you may want to put due dates in your calendar and set reminders on your phone for bills.

Enroll your secured credit card in autopay

Perhaps the easiest way to avoid late payments is to enroll in autopay. Autopay allows your issuer to automatically deduct the monthly balance, or a minimum payment, from your checking account so you don’t have to keep track of bills. You may be able to set up autopay through online banking or mobile banking by connecting your debit card to your credit card account. Just make sure you consistently have enough money in the linked checking account to cover your monthly bill. That way, you can avoid an overdraft.

Using your secured credit card responsibly can help you graduate to an unsecured card

A secured credit card can help you show a credit card issuer you’re ready to handle credit responsibly. With that in mind, some card issuers may offer cardmembers a path from a secured card to an unsecured card. After you use your secured card for a set period, staying on top of payments and keeping your balance to a minimum, your card issuer may offer you an unsecured card. You might even receive your deposit back.

With the Discover it® Secured Credit Card, you can get your deposit back after 6 consecutive on-time payments and maintaining good status on all your credit accounts.6

 

Once you graduate to a secured card, it’s still vital to maintain your financial health by using your credit card responsibly. After you’ve worked hard to build a positive credit history, you should celebrate what you’ve achieved while continuing to plan for your financial future.

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  1. Secured Card Deposit Range: If approved, you must make a minimum security deposit of $200 (or more, in increments of $100 up to $2,500), which will equal your requested credit limit. Discover will determine your maximum credit limit by your income and ability to pay.

  2. There is no hard inquiry to your credit report to check if you’re pre-approved. If you’re pre-approved, and you move forward with submitting an application for the credit card, it will result in a hard inquiry which may impact your credit score. Receiving a pre-approval offer does not guarantee approval. Applicants applying without a social security number are not eligible to receive pre-approval offers. Card applicants cannot be pre-approved for the NHL Discover Card.

  3. Build credit with responsible use(Secured): Discover reports your credit history to the three major credit bureaus so it can help build/rebuild 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/rebuild credit.

  4. 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 begin 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. Gas Station purchases include those made at merchants classified as places that sell automotive gasoline that can be bought at the pump or inside the station, and some public electric vehicle charging stations. Gas Stations affiliated with supermarkets, supercenters, and wholesale clubs may not be eligible. Restaurant purchases include those made at merchants classified as full-service restaurants, cafes, cafeterias, fast-food locations, and restaurant delivery services. Purchases must be made with merchants in the U.S. To qualify for 2%, the purchase transaction date must be before or on the last day of the offer or promotion. For online purchases, the transaction date from the merchant may be the date when the item ships. Rewards are added to your account within two billing periods. Even if a purchase appears to fit in a 2% category, the merchant may not have a merchant category code (MCC) in that category. Merchants and payment processors are assigned an MCC based on their typical products and services. Discover Card does not assign MCCs to merchants. Certain third-party payment accounts and digital wallet transactions may not earn 2% if the technology does not provide sufficient transaction details or a qualifying MCC. Learn more at Discover.com/digitalwallets. See Cashback Bonus Program Terms and Conditions for more information.

  5. Cashback Match: We’ll match all the cash back 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 earn cash back 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 offer may not be available in the future and is exclusively for new cardmembers. No purchase minimums.

  6. Getting your deposit back: Monthly reviews start your seventh month as a customer. We will refund your security deposit if you have made all payments on time for the last six consecutive billing cycles on all your Discover accounts including any loans, and you've remained in "good status" on all credit accounts you are responsible for whether they are Discover accounts or not. "Good status" means: (1) your credit report shows no delinquencies, charge-offs, repossessions, or bankruptcies for the six months prior to our review; and (2) your Discover secured card is not in a prohibited status at the time of our review, including, but not limited to: closed, revoked, suspended, subject to tax levy, garnishment, deceased, lost/stolen, or fraud. Monthly reviews may be delayed if you change your payment due date. We typically process your refund in 2-3 business days based on your delivery preference. If you close your account and pay in full, we'll return your deposit within two billing cycles plus ten days.

  • 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.