If you’re looking for a way to build credit or repair bad credit, you probably already know about secured credit cards. Unlike unsecured cards, which extend a line of credit without collateral, secured credit cards offer a line of credit that is secured with an initial deposit.
Because of this dynamic, secured credit cards generally come with very low limits. Adding an initial $500 deposit to your secured credit card, for example, usually means you’ll get a credit limit no higher than $500 or $600.
If you’re wondering why anyone would bother getting a secured card, the answer is simple: People with poor credit or limited credit histories often have no other choice. If they want to build credit, they need a way to show they can use credit responsibly. And if they can’t qualify for a traditional credit card, a secured credit card might be the only way.
- Related: Best Credit Cards for Bad Credit
Discover it® Secured: The Best Secured Credit Card on the Market
If you’re in the market for a secured credit card, the Discover it® Secured is far and away your best option. Unlike other secured cards that charge annual fees and application fees, the Discover it® Secured is absolutely fee-free.
Not only that, but it also lets you earn rewards on par with other cards in the Discover portfolio. Currently, you’ll earn 2x points on your first $1,000 spent at restaurants and gas stations each quarter, plus one point for every other dollar you spend. Amazingly, Discover will also match all cash back you earn during your first year as a card holder. For a secured card, it really doesn’t get any better than that!
The fact that the Discover it® Secured reports to all three credit bureaus is also a huge benefit. After all, having the opportunity to build your credit through reporting is the whole point of getting a secured card, right? Plus, you’ll get a free FICO score on your monthly statement.
- Related: How to Build Credit
Here are some additional details you should consider before you sign up:
Discover it® Secured
Discover it® Secured Review: Perfect for Credit Newbies
When you’re trying to build credit from scratch, a secured credit card might provide the best option. With the Discover it® Secured, you’ll put down a cash deposit equal to the line of credit you want to start with. With this card, the minimum deposit is $200 and the maximum deposit is $2,500. This will give you a “credit limit” within that range, with your deposit serving as collateral in case you default.
As with any type of credit card, your credit movements will be reported to the three credit reporting agencies. If you pay your bills on time and in-full, you’ll put yourself in the best position to watch your score tick up over time. Paying your bills late or running up a huge balance right away may end up hurting your credit, on the other hand. Remember, all of your credit actions will be reported to the three credit reporting agencies – Experian Equifax, and TransUnion. That includes responsible credit use as well as any bad credit decisions or fumbles you make.
Where the Discover it® Secured stands out is in its fee structure – as in, it doesn’t have one. Outside of the initial deposit, you won’t be charged an annual fee, application fee, or monthly maintenance fee to keep your card.
Another area where the Discover it® Secured excels is its rewards program. First of all, no other secured credit card on the market has a meaningful rewards program of any kind. Second, this card lets you earn real cash back you can use for whatever you want. And, who doesn’t love cash back?
Earning a standard 1% and up to 2% on bonus categories is unheard of among secured credit cards, and the fact that Discover will match your cash back after the first year is out of this world. While earning cash back may not be your goal when you get this card, it doesn’t hurt, either.
Discover it® Secured: Where it Falls Flat
When you compare the Discover it® Secured against other secured credit cards, it’s easy to see how this card is the best option on the market. But when you compare it to all credit cards across the board, it isn’t all that stellar. Traditional unsecured cards, for example, do not require you to put down a deposit as collateral. In addition, many unsecured credit cards offer rewards programs and perks that are much more lucrative in the long run.
That’s why it pays to know your credit score. If you can qualify for an unsecured credit card that doesn’t require an initial deposit, you’ll almost always be better off.
- Related: Related: What You Need to Know About Your Credit Score
Who This Card is Good For:
- Anyone with fair or new credit
- Someone with a thin credit profile who can’t qualify for an unsecured credit card
- Someone who wants to earn rewards while they build their credit
Who Should Pass:
- Anyone who wants better perks
- Someone whose credit is good enough to qualify for an unsecured credit card
Best Strategy with the Discover it® Secured
Since you’re probably getting the Discover it® Secured to try and improve your credit, it’s crucial to use your card to your advantage while you have it. As always, and whether you have a secured card or an unsecured credit card, the best way to improve your credit score over time is through responsible credit use.
Each time you use your card responsibly and don’t go overboard, your credit activities will be reported to the three credit reporting agencies. These agencies will, in turn, use that new information to adjust your credit score up or down. And if you’re using credit in a responsible way, any movements to your score should be mostly positive.
Here are some tips that can help you get the most out of your card:
- Put down a small deposit at first so you can get used to having a “credit limit.” When you first start using your card, it can be tempting to spend more than you planned. To ward off this problem, start with a small deposit and credit limit at first.
- Use your card for small purchases, then pay them off right away. To build positive credit habits, it helps to start small. Use your card for small purchases you planned to make anyway, then turn around and pay your card off.
- Pay your bill on time every month. Since your payment history makes up 35% of your FICO score, it’s crucial that you never pay your bill late. Set it up on autopay through your bank if you need to, or mark your due date on your calendar. Do whatever it takes to get your bill in on time!
- Once your FICO score is high enough, make the transition to an unsecured credit card. If you use your secured card in the way it was intended, you should be able to slowly build your credit score over time. Discover notes that, after 12 months of card ownership, your account will be reviewed to see if you can get your deposit back and upgrade to an unsecured version of this card.
The Bottom Line
If you’re looking for a secured credit card specifically, it doesn’t get any better than the Discover it® Secured. Not only does this card come without all the hefty fees most secured cards charge, but it offers real cash back rewards! And if you’re hesitant about getting a secured credit card in the first place, you probably shouldn’t be. Although you’ll need to put down a deposit to get started, you will get this deposit back as long as you don’t default and close your account in good standing.
And, as Discover notes, you can even have your account evaluated after 12 months to see if it’s possible to upgrade to an unsecured credit card. If you’re eligible at that point, you’ll get your deposit back in full. The only risk you’ll take is one that is mostly in your control – the risk of default. And if you commit to using credit responsibly, paying your bills regularly, and never being late or letting your account lapse, you should be in a good position to avoid most credit mishaps.
If you want to check out all the other secured cards on the market, you should check out our post on the best secured credit cards in 2016. If you think you may qualify for an unsecured credit card, on the other hand, feel free to check out our various guides on the top credit card offers across all types of cards:
- Best Credit Cards of 2016
- Best Rewards Credit Cards of 2016
- Best Cash Back Credit Cards of 2016
- Best Balance Transfer Credit Cards for 2016
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