How to Use a Secured Credit Card (2024)

Both traditional credit cards and secured credit cards extend a line of credit based on your income, creditworthiness, and other factors. But unlike a regular credit card, a secured credit card typically requires a security deposit used as collateral for your credit line.

Secured cards can be one option for people looking to build a credit history. The security deposit covers the debt incurred in the event of non-payment to the credit card company, so they’re often willing to issue a card to applicants who might otherwise be denied for an unsecured credit card. Then, just as they would for a traditional credit card, the issuer typically reports your activity to the credit bureaus, giving you the chance to build a credit history.

Read on to learn how to use a secured credit card, including using it as a credit builder, establishing healthy credit while avoiding common mistakes, and how with responsible use, you may be able to graduate from a secured card to an unsecured credit card.

Understand how credit works

Credit history and credit scores in top shape could help 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. That can benefit you because 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 typically come from three major bureaus: Experian, Equifax, and TransUnion. Under federal law, according to the Federal Trade Commission, you’re entitled to a free copy of your report from each of these bureaus. You can also get free copies of your credit report if you’re denied credit or insurance as a result of what’s reported. As an added benefit, Discover^® offers cardmembers the ability to get their FICO® Score for free.2

Credit 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 also include “hard inquiries,” which occur when you apply for credit. Many hard inquiries could impact 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. 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 responsibly handling debt and bills in order to prove you’re creditworthiness for lenders. A secured credit card can help you purchase necessities now while building that credit history.

You can 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 as collateral 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.

Typically speaking, the credit limit on a secured card will be smaller compared to a traditional credit card, which 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.

You can then build your credit with responsible use4 of your Discover it^® Secured Credit Card. Using your Discover secured credit card will build a credit history with the three major credit bureaus, unlike prepaid and debit cards, which generally don’t report to the three major credit bureaus.

Additionally, some secured credit cards offer the benefit of cash back rewards. 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.5 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.6

Steps to 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 steps for using a secured credit card as a credit builder 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. Your payment history is one of the most important factors in calculating your credit score.

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’re able to properly manage your money, and reducing your credit utilization ratio–the amount you owe compared to your credit limit. Both are factors that affect your credit score.

Set payment alerts for your secured credit card

Even the most organized person misses a payment now and then. But when you’re 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

Perhaps the easiest way to avoid late payments 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.

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

A secured credit card can be one way to show a credit card issuer you’re ready to handle credit responsibly. With that in mind, some card issuers may offer cardmembers a path to an unsecured card.

Once you graduate, consider keeping up your financial health by continuing to use your credit card responsibly. 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.