Credit card. Haven’t we all not only heard of this term, but actually used it in our daily financial lives?
Whether it’s our regular grocery shopping, bill payments, or that favorite gadget we’ve been keeping an eye on for a long time, credit cards as a method of payment help us with all of these expenses and easily repay more. late on the due date, in addition to grabbing tons of offers or rewards on transactions as well.
Eager to explore what secured credit cards are and what special set of features, advantages and disadvantages they have?
Read on as we unravel this whole concept for you, in addition to explaining how they can also help you enter the world of credit scoring.
Understanding Secured Credit Cards
General features of secured credit cards are similar to their regular counterparts ,such as reward points, discounts, vouchers, interest-free periods, etc. But, as the name suggests, these are secure in nature.
Simply, banks issue credit cards secured against collateral in the form of fixed deposits. So you either have to pledge your fixed deposit to a secured credit card with the existing bank where you have the FD and want to avail a secured card or you can create an FD with the bank from which you wish to benefit from a guarantee. credit card.
Now the question arises why would anyone hire an FD to avail themselves of a secured credit card? Why not just take a regular credit card without blocking your money put in FD?
This is exactly where the target group for secured credit cards should be understood.
Read also : Frequently Asked (Un)asked Questions – What are the risks of investing in “safe” bank FDs
The role of secured credit cards
No, not everyone needs to take these secure credit cards.
Only those who have difficulty getting approved for a regular credit card should avail of a secured credit card.
There are often times in life when people face rejection of their usual credit card application, for reasons ranging from low income, unusable location, risky job profile to lack of track record. credit or the presence of a low credit score. All of these people are not only deprived of the benefits of credit cards, but are therefore also deprived of the opportunity to establish a good credit score or improve the existing one.
Read here to learn more about the importance of credit score and why you need to have a good credit score.
And how can someone who doesn’t get a regular credit card get a secure one?
Also read: Why it’s important for millennials to check their credit report every month
The presence of a relaxed eligibility criterion
As secured cards are issued against the pledge of your FD, banks have a safety cushion to fall back on if you end up missing your credit card payment in the future. This is what allows banks to offer a relatively relaxed eligibility criterion to applicants.
This way, those who are having difficulty or rejection getting approved for a regular credit card can explore these cards, as the less stringent eligibility criteria due to the presence of FD as collateral is what opens the doors for you to enjoy the benefits of a credit card. and side by side, continue to build/improve your credit score, making you ready to qualify for a loan or credit card in the future!
Read also : Things That Impact Millennials’ Credit Score They Don’t Even Know About
But what about Pledged FD? Would you earn interest on it?
Yes. This is one of the biggest advantages of getting secured credit cards. Despite pledging your FD against a secured credit card, you do not lose interest on your pledged FD.
Your pledged FD bank continues to earn interest until it matures. This way you get the benefits of FD Bank as well as the secure credit card used!
The credit limit on secured credit cards
Unlike regular credit cards where your income and credit score are usually among the key criteria affecting your credit limit, the credit limit of secured cards is mainly based on the value of the pledge. fixed deposits. Most banks generally offer credit limits of up to 80% to 90% of the value of the fixed deposit pledged as a credit limit.
For example, if your FD bank pledge amount is ₹1 lakh, you can get a secured credit card with a credit limit of up to ₹80,000-90,000. But since product features, eligibility criteria, etc. vary from bank to bank for different secured credit cards, be sure to inquire about this before submitting an application.
Withdrawal of promised FD is not allowed
Although your pledged FD will continue to earn interest despite being pledged for a secured card, remember that you are not allowed to close this FD until the secured credit card is closed or has not reached the expiration date.
Read also : Why Your Credit Score May Drop Despite Timely Payments!
How do secured cards help build/improve credit score?
Your use and reimbursement of secured credit cards are treated the same by the credit bureaus as regular credit cards. Thus, your timely and full secured credit card repayments equally contribute to building a disciplined credit history or improving an existing credit score.
Especially for those who are unable to build up a credit history or improve an existing one due to the rejection of a regular credit card application. For all of these people, secured credit cards can be a gateway to a strong credit score.
Read also : How millennials can start 2022 on a financially strong note
What should be kept in mind before opting for a secured credit card?
By now you should be pretty clear about the features, pros and cons of secured credit cards, right? Another key aspect to remember when using secured credit cards is that there may not be as many options as regular credit cards, both in terms of the number of banks that l offer and range of cards offered by each. of them.
But, in the midst of it all, it’s equally important to remember the nature and purpose of secured credit cards. This category of cards, quite generic in nature, is intended to help people who are unable to obtain a regular credit card.
And with its relaxed eligibility criteria and similar features to their regular counterparts, they let you enjoy the dual benefits of having a credit card and building/improving your credit score.
Once you are able to establish a good credit history through disciplined repayments and the use of secure cards or improve an existing low credit score, you can then use a regular credit card and so take advantage of their wide range of great benefits!
Read also : Why do millennials fall into the credit card debt trap?
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