Discover it® Secured Review

Packed with features that are rare in the secured card category, Discover it® Secured is an undisputed leader. With no annual fee, and high approval odds, this card is a top pick if you have bad credit, or no credit at all. In the Discover it® Secured review below, I’ll explain the card’s main pros and cons, and discuss key points to consider before applying.

Secured cards aren’t known for their bells and whistles, but Discover it® Secured is in a league of its own for offering features that even some high-end cards don’t have. Here are the five major benefits that make Discover it® Secured one of the best secured cards, hands down:

No annual fee -- The vast majority of secured credit cards carry annual fees that can range from as low as $29 all the way to $200 and more. Discover it® Secured doesn’t have any annual fee.

Up to 2% cash back -- It’s almost unheard of to get cash back from a secured credit card, but Discover it® Secured offers 2% cash back on the first $1,000 of spending at gas stations and restaurants each quarter. In addition, the card offers 1% cash back on all other spending. Cashback Match™ multiplies your rewards in the first year, matching all of the rewards you earn (with no limit!).

You can pick your own credit limit -- Whereas most secured credit cards have a strict $200 or $250 credit limit, Discover it® Secured allows cardholders to make a larger deposit in exchange for a larger limit, up to $2,500.

Tools to build your credit and watch your progress -- Discover it® Secured reports your payment activity to all three major credit bureaus, which helps you build credit over time. It also allows you to watch your progress by giving you access to your FICO® Score for free. Other services charge as much as $350 per year to get access to a comprehensive FICO® Score profile.

You can graduate to an unsecured card -- One of the biggest perks of Discover it® Secured is that it can convert into a traditional unsecured Discover credit card. After as little as eight months of on-time payments, you may be eligible to have your security deposit returned, thus turning your secured card into an unsecured credit card.

Very few secured cards have no annual fee, a cash back rewards program, or FICO® Scores for free. Discover it® Secured offers all three benefits in just one card, making it a true “Swiss army knife” solution for rebuilding credit at no cost to you.

The truth is that secured cards largely exist for one reason: To help people build better credit over time -- period. Anything beyond that is really just icing on the cake. That said, if I could make a few changes to Discover it® Secured, here’s how I’d change it:

A 0% intro APR period -- You have to put up your own cash as collateral to get a secured card, so it would be nice for the card to offer a 0% intro APR period for purchases or balance transfers. While it offers a 10.99% APR on balance transfers for six months, this benefit isn’t really practical. It doesn’t make sense to use $200 as collateral for a $200 loan at a 10.99% intro APR.

No limit on rewards -- Discover it® Secured only offers 2% cash back rewards on the first $1,000 of combined spending at gas stations and restaurants each quarter, but many unsecured cards offer higher reward bonuses with higher quarterly limits ($3,000 or $5,000). That said, Discover it® Secured is one of the very few secured cards with a rewards program at all, so it’s hard to lodge a legitimate complaint here.

A lower deposit requirement -- Discover it® Secured sets your credit limit equal to the deposit. It requires you to deposit $200 for a $200 limit, or $500 for a $500 credit limit, and so on, up to $2,500. In contrast, Capital One® Secured Mastercard® offers a $200 credit limit in exchange for a deposit of $49, $99, or $200, depending on your creditworthiness at the time of the application. That said, the potential to get approved with a lower deposit is the only advantage the Capital One® Secured Mastercard® has on Discover it® Secured, since it doesn’t offer a rewards program or other perks.

Frankly, I’m really nitpicking to come up with improvements. Discover it® Secured already leads on so many features that other cards need to catch up to it, not the other way around.

It’s important not to lose the forest for the trees. After all, secured cards primarily exist as a way for people who have bad credit, no credit, or limited incomes to build or rebuild their credit reports. With this in mind, there are a few features that you should expect from any secured card.

• No annual fees -- Personally, I consider no annual fees to be a minimum requirement of any secured card, and many fail on this criteria alone. Because there are so many no-annual-fee secured cards out there, it doesn’t make sense to apply for one that has an annual fee.
  
• Access to FICO® Scores -- Given that the whole reason for applying for a secured card is to build or rebuild your credit, I think it makes sense for a secured card to give you access to a true FICO® Score from one of the big three credit agencies (Experian, Equifax, or TransUnion).
  
• Credit score reporting -- A secured card should report your account to at least one, if not all, of the big three credit bureaus. (Discover it® Secured reports to all three.
  
• An affordable deposit requirement -- You shouldn’t have to put up $1,000 just to open a credit card. It’s my view that cards that require a deposit of $250 or less are in the sweet spot for being accessible, while still offering credit limits that are useful.

As you can see, Discover it® Secured checks all the boxes for features you’d expect from a good secured credit card.

Your credit score is almost irrelevant for a secured card -- seriously. Because secured cards require you to put up cash as collateral, whether you have no credit at all, or seriously bad credit (a FICO® Score under 600), you can get approved for a secured credit card. There isn’t much risk for the card issuer, since it will keep your deposit if you fail to make payments.

When used correctly, a secured card is the single best way for you to build credit. But you have to be sure to use a secured card intelligently in such a way that it works for you, rather than against you.

Here’s how to use a secured card so that it helps your credit report and score:

• Keep your spending to a minimum -- It sounds counterintuitive to sign up for a card, get it, and then barely use it, but that’s exactly what you should do if you want to get a good credit score. Ideally, you should strive to keep your balances at less than 30% of your credit limit at all times. Thus, if you have a credit limit of $200, a balance of $60 or less is ideal. Use your secured card to pay for a tank of gas once a month, or use it to pay a recurring monthly charge (Hulu or Netflix work here), and then pay it off every month.
  
• Pay on time every single month -- Secured credit cards may require a deposit, but that doesn’t mean you get a pass on making payments. You have to make payments on a secured card just as you would an unsecured credit card. Making payments late can result in late payment fees, penalty interest rates on your balance, and negative marks on your credit score.
  
• Pay in full every single month -- If you’re ever wondering how much of your balance you should pay off in a given month, the only correct answer is “all of it!” When you receive your monthly statement, look for a number called your “statement balance.” The statement balance is the amount of money you must pay by the due date to avoid any interest on your balances. If you always pay the statement balance by the due date, you’ll never carry a balance over into a new month, and thus never pay a dime in interest. It is a myth that carrying a balance and paying interest helps your credit score.
  
• Watch your FICO® score -- Discover it® Secured offers a FICO® Score for free, which is a great perk if you’re working on building or rebuilding your credit. Being able to see your credit score change over time can be really motivating. Besides, this is a free benefit, so there is no reason not to use it.
  
• Set your sights on graduation -- One thing I really like about the card is that it offers a clear path to an unsecured credit card. Beginning with the eighth month after receiving your card, Discover begins automatic monthly reviews to see if you can be upgraded to an unsecured card. It’s quite possible that you could start with a $200 secured card, graduate to an unsecured card with a $1,000 limit, then watch as the credit limit is increased time and time again thereafter. When your credit card graduates to an unsecured card, you’ll receive a check in the mail for your deposit.

If you do each of these five things, I have no doubt that your credit score will start improving with each passing month. One secured card, used correctly, can easily vault you to a “prime” credit score in excess of 700 in a relatively short period of time.

The truth is that a secured credit card isn’t right for everyone. Used wisely, it can help you tremendously. Used incorrectly, it will only add more problems to your credit report. If all of the statements below apply to you, Discover it® Secured would be a great pick.

• You have bad credit or no credit and/or limited income. Though it may be annoying to have to put up collateral to get a secured card, it also means that secured cards are easy to get. It doesn’t matter if you have been denied for five different unsecured cards; your odds of approval for a secured card are very high.
  
• You can set aside $200. It only makes sense to apply for a secured card if you have enough cash to digest the deposit requirement. Discover it® Secured requires a $200 deposit. If you can afford to part with the money, it’s a good option. But don’t do it if it means being late on rent or skipping payments on another obligation.
  
• You will pay on time and in full. It doesn’t make sense to give your money to a bank open a secured card, and then borrow your money from the bank at a 20%-plus APR. Only open a secured credit card if you are capable of paying in full each month. Paying late will cost you in the form of interest, late payment fees, and potentially negative marks on your credit report.