Discover Credit Cards: Advantages & Disadvantages

If you think about credit cards, there's a good chance that the first few names that come to mind are the big three companies: Visa, Mastercard and American Express. But there are so many different financial companies that offer credit card services that consumers are no longer limited to just these three. While it may not be as universally accepted, the Discover card still offers cardholders some of the same perks and benefits as its counterparts. 

Testing for the Discover card first began in 1985. The very first purchase was made by a Sears employee in a Sears store in Chicago. The card was also tested out in Atlanta and San Diego before it was rolled out nationally. A year later in 1986, Dean Witter Financial Services Group, Inc., a subsidiary of Sears, Roebuck and Co., launched the Discover card in a national ad campaign during Super Bowl XX. The card came with no annual fee, which was somewhat of a rarity at the time. Another one of its perks, which was also in its infancy when the card was launched, was its cash back rewards.

The ad campaign along with its customer-friendly features made the card very popular. Discover is now the 4th largest issuer of credit cards in the world and has about nearly 44 million consumers who use the card. 

Discover Bank was formed after a series of acquisitions and reorganizations. Along with its credit card offerings, Discover Bank now functions as an online bank offering many traditional banking services, including checking and savings accounts, certificates of deposit, bill paying and more. It also offers consumers access to cash with 60,000 no-fee ATMs across the U.S. 

The Discover “it” card comes in various forms, including a line of cards catering to students and cards for more established customers with excellent credit. Staying true to its roots, the card still has no annual fee, and also does not charge its customers a foreign transaction fee. Discover won't charge a late fee for the first missed or late payment, but other missed or late payments will incur fees. Each of your monthly statements also comes with a free FICO score. As with all credit cards, you are not responsible for fraudulent transactions.

Features vary, depending on the card. The flagship Discover it card offers 5% cash back on certain categories that change throughout the year. Discover also promises to match all of the cash back at the end of the year for the first year. Non-student cards have an introductory 0% annual percentage rate (APR) for purchases and balance transfers for the first 14 months. The introductory 0% APR for student cards is for six months and applies for purchases only.

Customer service is a strength for the company, too. J.D. Power awarded Discover “highest rank in customer satisfaction" in its 2018 U.S. Credit Card Satisfaction Study, followed by American Express and Barclays U.S. For anyone who likes homegrown customer service, Discover advertises that it is completely based in the United States.

Like all credit cards, the attractiveness of the terms depends on your credit score. For non-student cards, those with borderline excellent credit could see an APR of 23.99%, but customers with stellar credit scores might be offered a 13.99% rate. The student cards have an introductory 0% APR for the first six months on purchases, then range from 14.99% to 23.99%. The APR for cash advances is 26.99% for all cards; you pay $10 or 5% of the amount, whichever is higher, as a fee. (For more, see How A Cash Advance Works.)

Transferring a balance may come with a 0% APR introductory rate, but you will pay a 3% fee with each transfer, a standard fee among most credit cards. (See The Pros and Cons of Balance Transfers.)

The Discover it card is included in Investopedia's list of the top cash back credit cards for its 5% cash back reward. However, unlike other cards, you have to keep track of the eligible categories for each quarter. There’s also a cap on the amount you can spend while still earning rewards — $1,000 to $1,500 per quarter — depending on the card. All other purchases earn you 1%.

Discover came to the market in 1986 as a more customer-friendly card. Today, the cards maintain those traits, but the benefits that set the brand apart years ago are now fairly standard in the industry. Carefully review the terms on each of its cards before applying. Two cards may look similar but have significantly different terms. For example, there is a 2% cash back (on gas and restaurants) card, besides the one that offers 5%. If you receive an offer in the mail, compare it to what's listed on the Discover website.

Finally, if you routinely hold a balance, the rewards may not make up for the interest payments, especially if you end up with one of the higher interest rates.