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ToggleCredit cards are known to be a blessing for managing your monthly finances and lowering some financial burden off your shoulders. However, people with low to no credit history may find it difficult to get one on favourable terms. Here’s when a secured credit card can help. But what is a secured credit card, and how is it different from an unsecured credit card? Continue reading to find out.
A secured credit card is a type of credit card that requires you to make a cash deposit upfront as a form of security. The amount you deposit usually matches the credit limit you’re given. For instance, if you deposit ₹50,000 as collateral, your credit limit will generally be ₹50,000. This type of card is particularly useful for those looking to build or rebuild their credit. Because your payment activity is reported to the credit bureaus, a secured credit card gives you the chance to improve your credit score and strengthen your credit history over time.
Secured credit cards function much like regular credit cards, but they come with certain restrictions, particularly regarding the credit limit and other related factors. Typically, the credit limit on a secured credit card is set between 75% and 85% of your fixed deposit (FD) amount. For instance, if you have a ₹1 lakh FD, your credit card limit would likely fall between ₹75,000 and ₹85,000. Consequently, a larger FD would result in a higher credit limit on your secured credit card.
Banks offer secured credit cards against FDs because the FD serves as a form of collateral. If the cardholder fails to make payments, the bank has the authority to liquidate the FD to cover the outstanding balance on the credit card.
There are several benefits of a secured credit card, such as:
Getting a credit card can be as simple as walking into a bank branch to open a fixed deposit and walking out with a card in hand. There’s no need for income verification or background checks; the documents you use for the fixed deposit also serve for the credit card application.
If you’ve struggled with a poor credit score or have no credit history at all, a secured credit card can help you start fresh. By using the card responsibly—staying within your limit and paying off your balance on time—you can steadily improve your credit score. Consistent usage and timely payments are key to rebuilding your credit quickly. Once your score is healthy, you’ll have more opportunities for other types of credit cards.
Your fixed deposit doesn’t just act as collateral; it also earns interest while it sits in the bank. Depending on the deposit term, you can accumulate a respectable amount of interest.
Another advantage is that many banks in India offer secured credit cards with either low or no annual fees. Plus, the initial deposit requirement is typically affordable, with some banks asking for as little as ₹10,000, making these cards an accessible option.
Most credit cards are unsecured, meaning they don’t require you to put down a deposit as collateral. These cards typically offer better benefits, such as attractive rewards, lower fees, and more favourable interest rates. For most people, unsecured credit cards represent a more advantageous option.
However, it’s understandable why someone might consider a credit card that demands an upfront cash deposit. For those with poor or no credit history, securing a traditional unsecured credit card can be extremely challenging. Without access to credit, improving one’s credit score becomes nearly impossible, making secured cards a viable alternative for building or repairing credit.
Unlike secured credit cards, unsecured ones don’t need a security deposit. Instead, the credit card issuer sets your credit limit based on your credit profile.
Unsecured credit cards often provide higher credit limits than their secured counterparts. This limit depends on your creditworthiness and overall financial condition.
Typically, unsecured credit cards offer a range of rewards, including cashback and travel perks. These benefits are generally designed for those with good to excellent credit scores.
Features | Secured Credit Cards | Unsecured Credit Cards |
Collateral Requirements | Yes | No |
Minimum Credit Score Requirement | Usually available for no credit history or scores below 669 | Usually 670 or higher |
Interest Rates | Have lower interest rates as compared to unsecured credit cards | These come with higher interest rates, especially for individuals with low credit scores |
Annual Fees | Usually, no annual fees are charged because of the collateral, but the collateral is a one-time fee and refundable | Sometimes, depending on the credit card issuer |
Accessibility | More accessible for individuals with a damaged or no credit history | Accessible for individuals with a good and stable credit history |
Credit History Building | Great for building your credit history as timely payments build credit scores | Better for people who already have a good credit history |
Rewards | May have limited offers and rewards | Comes with many offers, benefits, and rewards |
Secured credit cards or unsecured credit cards – which one should you choose? This mostly depends on your financial situation. A secured credit card may be better for repairing or building your credit history, but it requires collateral. On the other hand, an unsecured credit card is more accessible as it does not demand collateral, but it requires you to have a good credit score.
So, if you are looking to build your credit history, a secured credit card is a great choice. But if you already have a good credit history, an unsecured credit card is an ideal choice.
Secured credit cards need to be backed with collateral as a security deposit and are mostly meant for people who want to build or repair their credit history. On the other hand, unsecured credit cards don’t require a security deposit and are usually great for people with good credit history.
If you want to build your credit faster or want to repair a bad credit history, a secured credit card will be a better choice for you.
Secured credit cards come with some risks, such as low credit limits, high interest rates and fees, and locked funds.
Secured credit cards may come with charges, such as initial activation fees, processing fees, credit increase fees, and monthly maintenance fees.
A secured credit card can be a good choice for individuals who are having a hard time getting an unsecured credit card with feasible interest rate charges because of their poor or no credit history.
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