What is a Secured Credit Card?

A secured credit card works similarly to a traditional credit card, but it requires a security deposit to be made in advance. This deposit acts as collateral, ensuring the lender that they will be reimbursed in case the cardholder fails to repay their dues. The credit limit is typically a percentage of the deposit, and the cardholder uses the card like any other credit card, making purchases and repaying them monthly.

Benefits of Secured Credit Cards

Secured credit cards offer several advantages:

• Build or Rebuild Credit: Since the card is backed by a deposit, lenders are more likely to approve you even with little or no credit history.
• Easy Approval: These cards usually have minimal eligibility criteria, making them accessible to more people.
• Access to Credit: Provides a line of credit for everyday purchases, helping users develop responsible credit habits.

Drawbacks of Secured Credit Cards

Despite their benefits, secured credit cards come with some limitations:

• Limited Rewards and Perks: They often offer fewer benefits compared to unsecured cards.
• Impact on Credit Utilization Ratio: Lower credit limits can lead to higher utilization, affecting credit scores.
• Lower Credit Limit: Typically capped at 80-85% of the deposit amount.

Eligibility Criteria for Secured Credit Cards

These cards have minimal requirements:

• Age: Must be at least 18, though some banks may require applicants to be 21 or older.
• Deposit: A fixed deposit is required, which determines the credit limit.
• Credit History: No strict income criteria, as the deposit secures the card.

For example, if you deposit ₹25,000, your credit limit may range from ₹20,000 to ₹21,250, though some banks offer a full credit limit against the deposit.

How Can a Secured Credit Card Improve Your Credit Score?

If you're new to credit or don’t have a CIBIL score, using a secured credit card can help build your credit profile. Timely payments and a low credit utilization ratio demonstrate responsible credit usage, improving your credit score over time. This can lead to better financial opportunities, including unsecured credit cards with higher limits and perks.

How to Apply for a Secured/FD-Based Credit Card

Applying for a secured credit card is simple:

• Choose Your Issuer: Check with your existing bank for secured credit card options.
• Make Your Deposit: The deposit is held in a fixed deposit (FD) and determines your credit limit.
• Submit Your Application: Provide necessary identification and financial details.
• Start Using Your Card: Once approved, use the card responsibly to build your credit score.

Upgrade to an Unsecured Credit Card

After responsible use of a secured card for 12-18 months, many banks offer an upgrade to an unsecured credit card. Alternatively, a strong credit score may allow you to apply for a new unsecured card with better benefits.

Conclusion

Secured credit cards are a great option for beginners looking to build or improve their credit scores. While they require a deposit and have lower credit limits, they provide a stepping stone to better financial opportunities. Start your credit journey with a secured card, and you may soon qualify for more rewarding credit options.