A Secured Credit Card Helps Establish A Good CIBIL Score
Credit card penetration was not great in 2014-15 in India, in spite of sincere marketing efforts by the credit card providers. One of the main causes of this slow growth is tough screening parameters in place for selecting credit-worthy applicants. Apart from the CIBIL score, a credit card provider does not extend credit to applicants unless the applicants’ monthly gross income is found to be satisfactory. In such a scenario, a secured credit card is a worthy option for many to consider.
What are secured credit cards?
Normal credit cards are unsecured loans for lenders because they are not protected by collateral. Secured credit cards, on the other hand, are given against an asset, which you will forfeit to the lender in case of non-payment.
A bank can offer a credit card to an individual who doesn’t quality for a normal card and who has opened a fixed deposit with the bank against the opened fixed deposit. Such a credit card is secured as, should do default on payments, the bank will liquidate the FD against which the bank has given you the card to recover debts. Also you cannot close the FD till you hold the secured credit card. In general, banks cap the maximum credit limit to 85% of the amount of FD.
Apart from the fixed quotient, such a card works exactly like a normal credit card and you continue earning interest on the fixed deposit.
For whom a secured credit is a good option?
It is a good option for someone who:
• has low CIBIL score
• is not employed
• has a monthly income lower than the minimum income set by banks
• is living in a area that has been blacklisted by banks
• is working with a company that falls in the ‘blacklisted companies’ list
What are the advantages of a secured credit card?
• Helps you improve your credit score
If banks are not accepting your credit card application because of low CIBIL score, you can take a secured card and use it to build your credit credibility by displaying financial discipline by reporting a healthy card usage on your secured card and paying bills on time.
• Helps you build credit history
A bank can decide against issuing you a normal credit card if you have no credit history. Using a secured credit card allows you to build credit history, making you eligible for a normal credit after some time.
• Increase your credit limit while earning interest on the FD
If you already have an FD with a bank, why not opt for a security credit as well? It will not cost you a thing besides processing fee, if it is there. This way you can increase your credit limit while earning interest on your FD.
Many banks including ICICI, AXIS, and HDFC all offer versions of secured credit cards. We will be reviewing them sometime in the near future. In the meantime, check them out and see what card is best for you.