You’ve heard of credit cards that come packed with all kinds of rewards and stuff. There are even some made of metal, and some that are simply easy to get, even without a credit score check. But along this spectrum is something called the Secured Credit Card.
Secured credit cards are ideal for those in India with low credit scores or no credit history.
Most credit cards are unsecured financial products, meaning you don't have to pledge any asset as collateral, like the way you would for a loan. But financial institutions offer secured credit cards against collateral assets — usually, a fixed deposit.
Banks that offer these secured cards require you to have an FD of a certain amount to be eligible to apply for them. And the secured credit card’s credit limit is usually capped at 85% of the FD’s value.
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.
A secured credit card offers a host of different benefits to the cardholder:
Secured credit cards do not require users to have a credit history or a credit score — the only requirement: Holding an FD of a certain sum with the bank.
You create a credit history (over a period of 6-8 months) by using a secured card for purchases and payments. Similarly, with every successful, timely repayment that you make, you get to boost your credit score. And if you consistently have your credit utilisation ratio below 30%, you can further increase your score.
The application process for a regular credit card can be tedious. You will first have to satisfy the eligibility criteria set by the card issuer and submit an application form + other documents. Some banks may take a few days to process all of this.
However, the application process is far more straightforward with a secured credit card. Since you already have a fixed deposit with the bank, you won’t have to submit any documentation or satisfy complex eligibility criteria. All that you need to do is submit a duly filled application form to get the card.
Despite having your fixed deposit pledged as collateral for getting a secured credit card, you continue to earn interest on it. The bank only takes ownership of the FD in the case of unpaid outstanding dues. As long as you continue to use the card and repay your dues in a timely manner, your FD will remain untouched, and you will earn interest on your FD.
Having both a secured credit card and a fixed deposit with your bank helps build a good relationship. You then have access to stuff like a wide range of loans at attractive and favourable interest rates.
If you’re not eligible to apply for a regular credit card, but wish to own one, consider getting a secured credit card. You can find plenty of secured credit cards in India, ranging from cashback cards and shopping cards to rewards cards and travel cards. Determining the kind of secured credit card you want before applying for one is a good idea. Also, compare multiple cards with one another. Doing so can help you make an informed decision.
Yes. Every transaction and repayment you make on a secured credit card gets recorded & a report gets sent to the Credit Information Bureau — which assigns you a credit score. So, if you’re struggling with a low credit score or have no credit history, using secured credit cards can help you build credit.
FYI: The longer you use a secured credit card, the longer your credit history will be. Also, remember that timely repayments and low credit utilisation also help to boost your credit score.
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.