A Secured Card is just like any other credit card, except the basis on which they get issued (i.e., pledge of liquid security- Fixed Deposit). You can pay your bills, shop, book airline/railway tickets, etc., just like traditional credit cards, and pay the credit card bill on a monthly basis based on your billing cycle. If one does not file ITRs (Income Tax Returns), then a secured credit card is the best option for this.
In this post, we will discuss the concept behind Secured Credit Cards, features, the difference between a Secured Credit Card and an Unsecured Credit Card, how the card improves your credit score and frequently asked questions.
Credit cards have become a major component of our life. Carrying large cash is no more a hassle today. There are two types of credit cards, i.e., regular and secured. The normal cards are the ones where unsecured loans are available for the cardholders as they are unprotected by collateral. The secured credit cards are offered against assets, usually fixed deposits or any other savings. Non-payment of any dues can lead to the forfeit of the asset to the lender.
Here is what you must understand:
Here are more details:
Making timely payments helps increase your credit score. This is because of timely payments. The same constitutes up to 35% of the credit score. By getting a secured card issued in your name and repaying the dues on time, your credit score improves. Another important aspect in a Credit Report is the Credit Utilization Ratio (CUR) which constitutes up to 30% of the credit score.
After getting a secured credit card of a high amount issued in your name, you should try utilizing the credit limit to a maximum of 30% which shall help you build a better credit score. Here, it is important to note that a higher limit in your secured credit card will be helpful because it shall be easy to use less than 30% of Rs. 1 lakh than only Rs. 10 thousand.
In case you can do nothing about the limit, you should try to settle the bills as and when the transaction is made without waiting for the due date. This will help keep your CUR low.
Just like in the case of traditional credit cards, you need to submit an application to the bank for availing of a secured credit card. The bank shall then make a credit analysis based on the documents submitted by you. The bank will open an FD account in your name which shall be kept as security for your credit card. After this, a fresh credit card shall be issued in your name which shall work the same as the traditional credit cards.
Here are the FAQs:
A secured credit card has a cash collateral deposit which is the credit line for the account. The primary criteria for a secured credit card are that this card is issued only against a fixed deposit at any bank or financial institution. This card is offered to people who cannot get a regular card but have an FD with some financial institution or bank.
The person enjoys an increased credit limit along with normal interest on FD. One does not have to pay extra to opt for this credit card. Except for a processing fee, there is hardly any charge applied by the user. In addition to these benefits, the user keeps earning regular interest on the FD account.
Here are the people who can opt for a secured credit card:
Here are the points to remember:
These cards are secured since the bank has the right to liquidate fixed deposits to recover debts. The card holder gets no opportunity to close the FD account until he possesses the secured card. The banks usually offer 85% credit against fixed deposits. These cards are similar to regular credit cards. Users earn common interest on their fixed deposit even after using it as collateral.
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