Credit cards have become the major components 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 card holders as they are unprotected by collateral. The secured credit cards are offered against assets, usually fixed deposits or any other savings. Non-payments of any dues can lead to forfeit of the asset to the lender.
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 is 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.
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 a regular credit card. Users earn common interest on their fixed deposit even after using it as collateral.
Presently in India, there are different private sector banks such as Kotak Mahindra Bank, Axis Bank, ICICI Bank and also numerous public sector banks like State Bank of India (SBI), Central Bank of India, Syndicate Bank, etc. that offer an option to get secured credit cards against FDs.
There are numerous advantages of availing a secured credit card other than that it works like a standard credit card and gives an option for people not eligible for regular cards.
People with a bad credit history can apply for these cards. This is because their credit is secured for the bank with their fixed deposits. Thus, a genuine performance of the card holder over time can help him build his credit history.
Banks and financial institutions do not generally offer cards to people with a low CIBIL score. This card can help the users build a good report via proper usage and timely payments of bills.
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 FD account.