Credit card issuers offer two variants: unsecured and secured credit cards. You must have a good CIBIL of 750 or above to get a regular or unsecured credit card. But what if you have no credit history at all? This is where the second option comes in.
Secured credit card are like your regular credit cards, but they are provided against collateral, usually in the form of a fixed deposit. These are excellent options to begin your credit journey and become eligible for better credit offers.
How Does a Credit Card Backed by an FD Work?
Issuers offer secured credit cards because the risk of loss due to non-payment or late payment is low. The FD remains with the issuer till you continue the credit card, and they have the right to liquidate it to recover your debt if there is a non-payment. Depending on the issuer, you can continue the deposit even after closing the credit card account.
This minimum FD amount can differ across financial institutions, and you can also earn interest on the deposit with the bank or any of the financial institutions. The issuer usually offers up to 85-100% against the fixed deposit amount as the limit of your card. You can use the limit as you want and pay the bill every month to restore the utilised amount. Hence, these cards work very similarly to those of normal credit cards.
The responsible repayment behaviour, when repeated every month, helps improve your credit score over a period of time. As mentioned, if you fail to pay the monthly bills, the issuer is allowed to recover the amount from your fixed deposit.
Advantages of a Credit Card Backed by an FD
From access to credit to interest earning, there are a lot of perks you can enjoy with secured credit cards. Here is an overview of some of them:
Easy Access to Credit with No Credit History
You can opt for a secured credit card even if you don’t have a credit history or a poor credit score, as long as you offer collateral. By paying the bill on time, you can build your credit history while using this credit card. This will help you get approval for regular cards later.
Earn Interest on Your Fixed Deposit
The deposit you offer as collateral continues to earn interest. So, you get investment and credit in one instrument. By choosing a financial institution that offers lucrative rates, you can enjoy good returns.
Flexible Limits
The credit limit you get on these cards is linked to the deposit amount you pledge and is generally a part of it. So, you get better flexibility and can pledge a higher deposit for a higher limit, and vice-versa.
Rewards
These cards also come with a reward and offer structure that helps you get more value from your transaction. You can get discounts, cashback, and shopping offers on credit cards. This varies across financial institutions and the card you choose.
Use Everywhere and Anytime
You can use your secured credit card everywhere and anywhere, just like with a regular card. It is important to use your card responsibly and safely to keep your information protected.
Features of a Credit Card Backed by an FD
Although it offers many benefits, there are some aspects of secured credit cards that you must know. Here are some of these:
- Joining Fee: These credit cards usually come with a nominal joining fee, making them more affordable than some other beginner-friendly cards.
- Interest on Fixed Deposit: You get interest on your fixed deposit, so your funds grow while you access credit.
- Credit Limit: Depending on the issuer, you can get up to 100% of your FD amount as the limit, which means you can make the most of your funds.
- Rewards: Get great rewards on your transactions and redeem them on time for maximum benefits.
You can choose between secured and unsecured credit cards according to your financial situation and eligibility. An unsecured card gives you access to exclusive offers and rewards, allowing you to save more. In comparison, a secured credit card gives you a way to access credit affordably, even with a low or no credit history.
The One Credit Card offers a great combo of secured credit cards with a fixed deposit. You can get a credit limit of 100% of your deposit and earn a high interest rate as high as 7.5%*. If not a secured card, you can also apply for an unsecured one and enjoy up to 5X rewards on your top two spending categories.
You can instantly activate your virtual card and manage your finances on the One Credit Card App. The app lets you convert your spending into easy EMIs, access the latest offers, and much more. Apply now and enjoy financial freedom within a few clicks.
