If you do not have a good credit score or are new to credit cards, getting a secured credit card could be ideal. Secured credit cards are issued by the financial institutions against collateral such as Fixed Deposits (FDs) and savings bank accounts. This article takes you through all the details of a secured credit card, its benefits, how to apply for it and the best-secured credit cards. Read on!
A secured credit card is issued against collateral.
A secured credit card requires cardholders to pay a specific sum as collateral and is especially issued to those with no credit history. The amount paid as collateral becomes the maximum credit limit. Banks or financial institutions issue such cards against investments like FDs or even savings account deposits.
Benefits of Secured Credit Cards
While some consider secured credit cards as expensive ways to get credit, people looking to build their credit score from scratch may find it beneficial. This increases their chances of receiving loans. Here’s a list of benefits of a secured credit card:
Acceptance: One can use secured credit cards instead of normal credit cards. They can be used to make purchases both online and offline.
Non-requirement of credit score: Secured credit cards do not require individuals to have a high credit score. Credit card issuers accept a security amount for these cards to make the issuance less risky. Individuals with no credit history can easily avail this payment card.
Flexible credit limit: To keep purchases and credit history secure, secured credit card issuers allow users to request a credit limit of their choice. Thus an Rs.50,000 credit limit requires users to pay a security deposit of the same amount. This flexibility of choosing one’s credit limit allows individuals to keep their spending within limits.
Possibility of improving credit score: Since credit history reports are constantly recorded, an individual may improve his/her credit score by using a secured credit card responsibly. If users make their payments within due dates and keep their purchases within 30% of their credit limit, their credit history improves significantly.
Switch to an unsecured card afterwards: When secured credit card users gather enough reliability and credit history, they can successfully switch to an unsecured credit card. The time required for the switch cannot be predicted beforehand, but it depends on how responsibly one uses the financial tool.
10 Best Secured Credit Cards
Here’s a list of the best-secured credit cards in India:
Secured credit cardsoffer the same reward points and other benefits that unsecured cards provide. It is easier to get a secured credit card if you have a low credit score and also improve your credit score by using a secured credit card. However, keep in mind that you have to pledge collateral to a secured credit card.
FAQs on Secured Credit Cards
Q1. Can secured credit cards build one’s credit score?
Ans: Secured credit cards help build one’s credit score from scratch. The credit report records your payment details and the investment you’ve made in the form of collateral. In addition, on-time payments help improve the score.
Q2. What is the time limit for holding a secured credit card?
Ans: There are no limitations for holding and using secured credit cards. The duration depends on the time one requires to qualify for a normal credit card.
Q3. How can a user increase his/her secured credit card’s credit limit?
Ans: The credit limit for a secured credit card depends on the deposited amount kept as collateral with the bank that issues the card. Users can contact bank representatives to expand their credit limits.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.