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Secured Credit Cards: Myths About Credit Cards & Security Deposits

Last Updated: July 9, 2024
5 min read
Getting a credit card

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Key Points:

  1. Secured credit cards require a cash security deposit and provide a credit limit equal to your security deposit.

  2. You may qualify for a secured credit card even if you don’t have a credit score.

  3. Secured credit cards can help you build or rebuild your credit history with responsible use.

Are you worried you won’t qualify for a new credit card? There are some valid reasons to be concerned, like if you have no credit history, limited credit, less-than-perfect credit, or you’ve recently gone through financial hardship. Do you have options? Yes. There are ways to build (or rebuild) your credit that include credit card offers.

You could still qualify for a credit card by applying for a secured credit card account. Using a secured card responsibly may help you build positive credit history.

Secured credit cards defined

A secured credit card is a card that requires a refundable cash deposit that’s equal to your credit limit—and this can be as low as $200. A standard or unsecured credit card extends a credit limit without needing a deposit or collateral.

Some secured credit card issuers will periodically review your account to see if you qualify for an unsecured card. For example with Discover, after 7 months, we begin automatic monthly account reviews to see if you qualify to upgrade to an 'unsecured' card and get your deposit back.1

Is it the best credit card for you? Every situation is different. Many people who consider applying for a secured credit card are concerned about how or when they’ll get their security deposit back. Others may wonder if a secured credit card is a real credit card that can help them build a credit history or repair bad credit.

Don’t let these misconceptions keep you from applying for a secured credit card. The truth is, secured credit cards may be a great option to help you build good credit and establish a stable financial future.

Myth 1: Your credit card security deposit is nonrefundable

Reality: The security deposit on your secured credit card is fully refundable. You can get your security deposit money back if you close your account, so long as you pay your balance in full. If you cancel your account and your balance is zero, you’ll likely get a refund. Note that the timing of receiving your refund may differ from issuer to issuer.

Myth 2: You can’t increase the credit limit on a secured credit card

Reality: Your credit limit on a secured card is a portion of your security deposit (up to 100%). Some cards allow you to increase the credit limit by providing an additional deposit.

Myth 3: You can’t afford a credit card security deposit

Reality: The security deposit for your secured card doesn’t have to be a huge amount; it just must be enough to open the account. Consider a secured card with a low minimum security deposit amount.

With the Discover It® Secured Credit Card, your credit line will equal your deposit amount, starting at $200.2 So, once you save $200 you can use it for your security deposit.

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Myth 4: Credit card security deposits are bad for your savings

Reality: A secured credit card can help you build your savings by giving you a savings goal for your deposit. 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.

Plus, as mentioned above, you can earn your deposit back and add to your savings.

Myth 5: A secured card isn't a “regular credit card”

Reality: Sometimes people get secured credit cards confused with prepaid cards or debit cards.

  • Prepaid cards and debit cards withdraw money from a pre-existing balance of funds and don’t involve borrowing.
  • Secured credit cards work the same way as unsecured credit cards by extending credit.
  • Prepaid card issuers and debit card bank accounts don’t report your activity to the credit bureaus, and don’t impact your credit history or credit score.
  • Secured credit card issuers report your activity to one or more credit bureaus.

Myth 6: Secured credit cards don’t help your credit score

Reality: Many people who don’t have a credit history or don’t have a credit score can establish and build a credit history by getting a secured credit card. Because it's a real credit card, a credit bureau will receive your activity from your credit card issuer. The more dependable you are with your payments, the better your credit will look in your credit report.

Did you know?

The Discover It® Secured Credit Card is a real credit card. And, since Discover reports your payment history to the three major credit bureaus it could help build your credit with responsible use.3

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Myth 7: Secured cards don’t provide credit card rewards

Reality: While some secured credit cards don’t offer a rewards credit card, the Discover It® Secured Credit Card lets you earn rewards just like every other Discover credit card. 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

How much will a secured credit card help your credit score?

Secured credit cards are a great option when you start your credit journey or need to make a credit repair. Because much will depend on how you manage your payment history and credit limit, there’s no exact calculation on how much it can help your credit score.

Don’t let the myths about secured credit cards hold you back. With a bit of research, you’ll see why secured credit cards can help you build a credit history and make a credit repair. If you want to establish credit for the first time or make positive changes to your credit history and credit score, applying for a secured credit card may help you manage your spending and build a stronger financial future.

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  1. 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.

  2. Minimum Security Deposit: 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.

  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. 2% Cash Back at gas and restaurants: 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.

  • 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.