There are a bunch of credit cards in the market — some of them are easy to get if you have a good credit score and a source of healthy income. But if you don't have a good credit score or an unestablished credit history, then you can opt for a secured credit card.

What is a Secured Credit Card?

Most credit cards are unsecured financial products, meaning you don't have to pledge any asset as collateral, like the way you would do for a loan. But financial institutions offer secured credit cards against collateral assets — usually, a fixed deposit or cash.

Banks that offer these secured cards require you to have an FD of a certain amount to be eligible to apply for them. And its credit limit is usually capped at 85% of the FD’s value.

How does a Secured Credit Card Work in India?

Secured credit cards function just like regular credit cards — the only difference is what happens when dues are left unpaid.

Banks are authorised to liquidate your fixed deposit to recover any unpaid debts or outstanding amounts that you may have on the secured credit card. So, it should be a priority not to miss repayments.

Advantages of secured credit cards

A secured credit card offers a host of different benefits to the cardholder:

• Made for people with low or no credit history: Secured credit cards do not require users to have a credit history or a credit score. The only requirement is to hold an FD of a certain sum with the bank.
• Helps build credit history: You create a credit history (over 6-8 months) using a secured card for purchases and payments. Similarly, with every successful, timely repayment you make, you boost your credit score. And if you consistently have your credit utilisation ratio below 30%, you can increase your score.
• Continue to earn interest on the FD: With a secured credit card, your fixed deposit acts as collateral without affecting your interest earnings. The bank only claims ownership of the FD if you have unpaid dues. By using and repaying the card promptly, your FD remains intact, allowing you to earn interest.
• Good relationship with the bank: Having a secured credit card and a fixed deposit with your bank helps build a good relationship. You then can access a wide range of loans at attractive and favourable interest rates.

Conclusion

Secured credit cards provide a viable option for individuals with limited or no credit history. By pledging a fixed deposit as collateral, you can establish a credit history and improve your credit score over time. The advantage of earning interest on the fixed deposit while using the card responsibly adds to its appeal. Additionally, maintaining a good relationship with the bank through a secured credit card lead to favourable loan options in the future.

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Frequently Asked Questions

1. Do secured cards build credit history?

Yes. If you have a low credit score or no credit history, using a secured credit card can help build a credit history. If you make timely payments, your credit score will automatically improve.

2. How do secured cards work?

Secured credit cards in India are issued against a fixed deposit. In case you default or delay the repayment, your bank is authorised to liquidate the FD held as collateral and use the funds to settle your unpaid/ outstanding debts.

3. What is the minimum deposit for a secured credit card India?

While this largely depends on the bank, the minimum deposit is ₹20,000.

4. How to get a secured credit card?

To get a secured credit card, you typically need to follow these steps:

1. Research and choose a suitable secured credit card provider - this ranges from card type, cashback, other intangible benefits, spend limits, and more.
2. Apply for the secured credit card by submitting an application form.
3. Provide a security deposit, which serves as collateral for the credit limit.
4. Once approved, your secured credit card will be issued to you.
5. Use the secured credit card responsibly and make timely payments to build a credit history and upgrade to an unsecured credit card.

5. How much does a secured credit card help your score?

A secured credit card can help improve your credit score by establishing a positive credit history. Making timely payments and maintaining a low credit utilization ratio with a secured credit card can demonstrate responsible credit behavior to credit agencies. However, the impact on your credit score will vary based on your overall credit profile and how well you manage the card.