Poor credit or a nonexistent credit history can make it more difficult to be approved for a credit card. One option is to apply for a secured credit card.
But what is a secured credit card? Below, we’ll discuss what makes a secured credit card different than a regular unsecured credit card, and how you may be able to get one.
What Is a Secured Credit Card?
Last Updated: September 13, 2024
5 min read
Key points:
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A secured credit card is a type of credit card that requires a security deposit to open.
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A secured credit card may be a good option for someone with bad credit or no credit history.
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The Discover it® Secured Card can help you build credit with responsible use.1
How does a secured credit card work?
A secured credit card is a card that requires the cardmember to secure the account with a deposit that will equal the account’s credit limit amount. For example, if you’ve been approved for a secured credit card and put down a $1,000 security deposit, your credit limit for the account is $1,000.
Secured credit cards work by allowing you to make purchases within your credit limit, just like a normal credit card. And like a regular credit card, there’s a standard interest rate, or APR, on your purchases.
One of the main differences between secured cards and unsecured credit cards is what happens if you miss payments. For both types of cards, a missed payment can result in late fees or other penalties. However, if you don’t pay your secured card payment on time, the credit card issuer may use your security deposit to pay what is due, and they may close your account.
Apply for the card
Start by applying for the card. Getting the card isn’t guaranteed. Your application can be turned down.
Provide a security deposit
Once you’re approved for a secured credit card, you’ll need to provide a security deposit equal to the credit limit on your account. For a Discover it® Secured Credit Card, your credit line will equal your deposit amount, starting at $200.4
Use your card responsibly
Your credit card company will report your account activity to one or more credit bureaus. Late or missed payments on your credit card accounts and loans may hurt your credit score and lead to poor credit. Using your card responsibly and paying every bill on time and in full by the due date, may help you build positive credit history.
Did you know?
Use the Discover Credit Card pre-approval form to see if you’re pre-approved with no harm to your credit score.5
Does a secured card work differently from a prepaid card or debit card?
Secured cards, prepaid cards, and debit cards all require account holders to provide funds before any purchases can be made, but that is essentially where the similarities end. A secured card is a credit card, not a debit or prepaid card.
With a prepaid card or debit card, the amount of each purchase is immediately subtracted from the balance of the account. But with a secured credit card, the money you put up–the refundable security deposit–is unaffected when you make a purchase and is not used to pay the account balance (unless you go into default or close your account with a balance). Rather, your charges will appear on your monthly statement with an amount due for that month, the same as a regular credit card. Your monthly payments are separate from the money you put down initially.
Whereas prepaid and debit cards don’t report to credit bureaus, many secured credit cards do. If your secured card issuer reports to one of the credit bureaus, secured cards can be an attractive way to build credit history–your responsible use counts for something.
That’s why it’s critical that secured credit card users pay at least the minimum amount due on time each month on all their loans.
How to get the most from your secured credit card
Choose a secured credit card with rewards
Unlike some secured credit cards, the Discover it® Secured Credit Card offers rewards on purchases. The card helps you earn 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, automatically.6 And with your Discover Credit Card, get an unlimited dollar-for-dollar match of all the cash back you’ve earned at the end of your first year, automatically. There’s no limit to how much we’ll match.7
Transition to a standard, unsecured credit card
Some secured credit card issuers will periodically review your account to see if you qualify for an unsecured card. 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.3
If you don’t have good credit, or you’re seeking a credit card that can act as a credit builder, a secured credit card may be able to help. They work similarly to a traditional credit card, but to open the account, you must put down a security deposit. And depending on the credit card company, you may be able to graduate to an unsecured credit card with on-time payment history and responsible use of your card.
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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.
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No Credit Score Required (Secured Card): Based on 2023 Discover it Secured credit card application data, applicants without a credit score may qualify. You must meet other applicable underwriting criteria. When we evaluate your creditworthiness, we consider all the information you provide on your application, your credit report, and other information. If you have a credit score, we may use that in our evaluation.
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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.
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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.
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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.
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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.
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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.
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