What is a 'Secured Credit Card'

A secured credit card is a type of credit card that is backed by a secured payment used as collateral on the account. Secured credit cards are often issued to subprime and thin file borrowers. With standard reporting to credit reporting agencies, these cards can help borrowers improve their credit profile.

BREAKING DOWN 'Secured Credit Card'

Secured credit cards are issued by nearly all of the leading credit card lenders. These cards require a standard credit application which assesses a borrower’s credit score and credit history through a hard inquiry with a credit reporting agency. Underwriting and credit approval procedures then determine the amount of funds needed by the borrower to open an account. Funding values typically range up to $200. Limits on the card will range between 50% to 100% of the collateral deposit amount.

Secured Credit Card Structure and Terms

A secured credit card functions in the same way as a standard credit card. Borrowers can use the card anywhere the card brand is accepted. Borrowers can accumulate purchases up to the card’s maximum limit. Borrowers pay interest on outstanding balances which is detailed in the credit agreement. Cardholders also receive monthly statements showing their end of period balances and the activity on the card during the specified month.

The secured card payment made to open the account serves as account collateral and is generally only used in the case of default. The secured collateral makes a secured card different from standard cards. It is required to open the account and is not accessible to the borrower once it has been paid. Secured card holders are responsible for making monthly payments on the credit card which are requested from the borrower through their monthly statement.

While secured credit cards are typically obtained to improve a borrower’s credit they can also hurt a borrower’s score if any delinquencies arise. Usually secured card lenders will use the card’s deposit as reserve collateral for any credit losses. Thus, lenders will report delinquencies if missed payments occur, generally only using the deposit in default. If positive payment history occurs on the card, secured card lenders may increase a borrower’s credit limit over time.

Discover it Secured Card

In the credit card industry the Discover it Secured Card is one of the industry’s most popular secured cards. It generally approves borrowers in the fair credit category. It also accepts borrowers with minimal credit history. The card’s maximum initial limit is $200 requiring a deposit of up to $200 to open the account. At eight months the card is reviewed for an unsecured card transfer at which time the borrower’s deposit can be refunded.

The Discover it Secured Card offers numerous cash back rewards. It has a variable annual percentage rate of 24.24% with a balance transfer intro annual percentage rate of 10.99% for six months. It also does not require an annual fee.

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