Discover it® Secured Review: Earn 2% Cash Back While Building Credit

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The Discover it Secured card offers rewards to secured credit card users.
Image Credit: Discover / Clark.com

If you have a poor credit history or are looking for your first credit card, the Discover it® Secured card has some characteristics that make it stand out in the secured credit card space.

Though it is a card that requires a security deposit and generally is used to either build credit or as a means of credit repair, Discover offers several of the perks typically reserved for unsecured cardholders.

For example, Discover it® Secured cardholders are eligible for cash back rewards and free FICO score updates. Read on for more…

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Team Clark spent some time examining the Discover it® Secured card as it compares to some of the other popular secured credit cards on the market.

We measured it by the standards money expert Clark Howard recommends for choosing a secured credit card, which include characteristics like no annual fee and a pathway to traditional credit.

What Is the Discover it® Secured Card?

Discover it® Secured is a secured credit card that offers those with a poor or non-existent credit history a chance to develop a strong reputation as a borrower.

It is a real credit card, unlike debit cards or prepaid cards marketed to consumers with a sparse or poor credit history. This means the behavior exhibited with this card will be reported to all three credit bureaus and can impact your credit score.

The card requires a security deposit of at least $200, which will serve as collateral for the line of credit issued by Discover. If you want a larger credit limit, you are going to be asked to make a larger deposit — the maximum is $2,500. This serves as an insurance policy of sorts for Discover in case the borrower fails to make monthly payments.

Discover it® Secured Card Specs and Perks

Before we get too far into whether or not this secured card is the right choice for you, let’s take a look at some of the perks and drawbacks of the card from the fine print:

Cardholder Benefits

  • No Annual Fee: This is an important component to Team Clark’s recommendations for secured credit cards. Because these are designed to be a short-term and temporary pathway to unsecured credit cards, it is recommended that you avoid an annual fee for a secured card.
  • Cash Back Bonus: Rewards programs are pretty rare for secured cards, so this is a real perk of this card. Discover offers 2% cash back on gas station and restaurant purchases, plus 1% cash back on all other purchases. We’ll dive into how the cash back program can pay off for you later in the article.
  • Cash Back Match: Discover offers a one-time cash back match after your first 12 billing cycles. This is a really great perk. For example, if you earn $100 in cash back bonuses over your first year as a card holder, Discover will automatically give you another $100 in cash back. This is only valid for your first year as a cardholder.
  • Refundable Deposit: Handing over a deposit of at least $200 to open the account is a requirement, but Discover touts a couple of ways to eventually get that money back: paying the balance in full prior to closing the account or if you are approved for an unsecured card with Discover instead.
  • Pathway to Unsecured Credit: After 8 months, Discover will automatically evaluate your account each month to determine if you’re eligible for upgrade to an unsecured card. This is an important part of signing up for a secured credit card: You’ll want to make sure you have a clear path to transitioning to a more traditional credit card.
  • Access to free FICO Score: Discover offers access to your FICO score, which is based on data from TransUnion, via monthly statement, online account and mobile app.
  • Flexible Deposit and Credit Limit: Upon analysis of your application, Discover will determine the maximum amount you can borrow on the secured card. From there, you get to decide how much money you deposit beyond the $200 minimum. For example, if you want a $500 credit limit, you’ll be required to put down a $500 deposit. Again, the maximum allowed is $2,500.

Cardholder Fees

There is no annual fee for using the card, but there are some associated rates and fees that could impact you as a Discover cardholder:

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  • Balance Transfer Fee: Discover’s standard fee for balance transfers is 5% of the amount of each transfer. You may be eligible for a lower fee during a welcoming period for new cardholders.
  • Late and Returned Payment Fees: Discover offers a late-payment forgiveness the first time you miss a payment. The charge is “up to $39” for any late payment after that. Likewise, you could be dinged for up to $39 for a returned payment.
  • Cash Advance Fee: If you need to utilize a cash advance through your secured card, you will owe either $10 or 5% of the total advance, whichever is the higher amount.

Please note that annual percentage rates also apply to balances, but your individual rate will vary based on credit history factors.

Team Clark recommends that you avoid carrying a balance on a secured credit card to both avoid the interest charges and keep your credit utilization in check.

How the Discover it® Secured Cash Back Program Works

Cash back rewards programs are pretty rare for secured credit cards. Discover is one of the few card issuers that offers one. While you won’t get the same benefits as unsecured cardholders, the details are still fairly user-friendly.

Secured cardholders will not be eligible for the promotional 5% cash back offerings the unsecured version of this card features, but here is what you can expect instead:

2% Cash Back: Discover will pay 2% cash back on purchases made at gas stations or restaurants during the first 12 billing periods of card membership. Since this card has a standard 1% cash back rate otherwise, the extra 1% is considered a match from Discover. The match is capped at $1,000 in purchases per quarter.

This match is earned after 12 billing cycles, and will be applied to the account all at once in one of the following billing cycles.

1% Cash Back: This applies to all other purchases made with your secured card. This cash back reward is credited to the account automatically.

Spending Example

If you are wondering how much of a boost a 1% cash back with some 2% opportunities could impact your savings with a secured card, we decided to make a handy chart to help illustrate.

Some things to note before viewing the spending chart:

  • Since there is a $1,000 spending match on 2% match per quarter, the chart uses quarterly spending (three months) to illustrate the potential impact of the cash back promotion.
  • The lowest spending total ($180) represents a 30% monthly credit utilization on the lowest credit limit ($200).
  • The highest spending total ($7,500) represents a maxed out monthly usage of the highest credit limit available for this card ($2,500).
  • In the 2% column, you’ll notice that the return on purchases drops to 1% after the $1,000 quarterly cash back match is met on gas and restaurant purchases.
Quarterly Spend2% Cashback Category
(Drops to 1% after $1,000 in purchases)
1% Cashback Category
$180$3.60$1.80
$250$5$2.50
$500$10$5
$1,000$20$10
$1,500$25$15
$2,000$30$20
$2,500$35$25
$5,000$60$50
$7,500$85$75

Cash Back Match

As a one-time welcome bonus opportunity, Discover matches new cardholder’s cash back earnings for the first 12 billing cycles. If you earn $200 in cash back rewards during Year 1 with the card, Discover will match the $200. It’s done automatically, so you don’t have to worry about jumping through any hoops to qualify.

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I did a little digging into Discover’s fine print on the card to highlight what you can expect from this cash back match process:

  • There are no purchase minimums
  • The match will be applied to the account 1-2 billing periods after completing 12 billing cycles
  • You won’t qualify for the match if your account is closed or no longer in the cash back program
  • This is for the first year of membership for new cardholders only

That’s a huge perk for a card that you’re likely hoping is only a temporary solution in the first place.

Discover it® Secured vs. Navy Federal nRewards® Secured

Secured credit cards are not typically known for rewards programs, but Discover is not alone in its attempt to integrate them into offerings for people who are building credit.

Navy Federal Credit Union also is offering rewards to its secured cardholders. But the credit union’s program is a bit different than the cash back rewards offered by Discover.

At the core of their rewards programs, both appear to offer unlimited 1% rewards on purchases made with the secured cards. But let’s look at some of the differences:

Cash Back vs. Rewards Points

While Discover’s cash back offer is a straightforward money that can be applied to your account balance, the rewards points system for Navy Federal is a little more nuanced.

Navy Federal awards you one reward point per dollar spent. Those points can then be redeemed for cash, merchandise or gift cards. Navy Federal also touts that rewards points can be used for things like booking flights, hotels and car rentals, but the nRewards secured card is not eligible for this.

If utilized as a cash back reward, Navy Federal will credit your savings account at a 1% redemption rate. For example, if you earn 1,000 reward points by spending $1,000, you can get a $10 statement credit.

Gift cards and merchandise offers are available through Navy Federal’s partnerships and are offered as redeemable rewards for points. For example, a $50 Amazon gift card may be offered for redemption at a cost of 5,000 nRewards points.

While the additional redemption options Navy Federal offers are nice, the 2% cash back on gas station and restaurant purchases with Discover may be the better fit for on-the-go consumers looking to maximize cash back value.

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Membership Requirement Hurdle

The Navy Federal nRewards Secured card is not available to just anyone who applies. You need to be a member of Navy Federal Credit Union to gain access to this rewards card.

The good news is that you don’t have to be an active member of the military to qualify for membership. In addition to military personnel, the following people are also eligible:

  • Veterans
  • Family members of military personnel
  • Department of Defense employees and contractors
  • Some United States government employees

You can check Navy Federal Credit Union’s eligibility page to see if you qualify to apply.

How to Use a Secured Credit Card

If you are considering adding the Discover it® Secured card to your wallet, we want to make sure you’re fully equipped to get the most out of your secured credit card experience.

Money expert Clark Howard has four areas of concern that you should assess when choosing a secured credit card. Those include annual fees, interest grace periods, junk fees and a clear path to unsecured credit. You can read more about these red flags for secured credit cards here.

Fortunately, this Discover card rates really well in those areas and is included in Team Clark’s best options for secured credit cards.

No matter which secured card you decide on, Clark wants you to do the following:

  • Make multiple small purchases each month
  • Keep your credit utilization under 30% at all times
  • Pay your bill in full and on time

Follow those steps and you’ll be well on your way to an improved credit score and an unsecured credit card.

Final Thoughts

Are you considering adding the Discover it® Secured card to your wallet? Let’s review some of the pros and cons of the card before you make your final decision:

Discover it® Secured: Pros and Cons

Pros Cons
No annual fees $200 minimum deposit
Cash back rewards program Some retailers may not accept Discover
Cash back match for Year 1 Quarterly cap on 2% cash back earnings

Bottom Line: If you are in the market for a secured credit card to help you build or rebuild your credit, the Discover it® Secured is one of the top options. With no annual fee, cash back opportunities and a clear path to evaluation for traditional credit, it could easily be your best choice in this category.

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Do you have experience with the Discover it® Secured Card? Let us know how you like it in the comments below!

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