The bank reserves the right to forfeit the FD attached to the card in case of default in payment.
Similar to a secured loan, a secured credit card is backed by collateral. Usually, banks offer secured credit cards against fixed deposits (FDs).
The use of credit cards is on the rise in India, as they serve a variety of purposes, from paying utility bills to making purchases. Generally, banks issue credit cards only to individuals with a strong credit score. However, for those with a weak or non-existent CIBIL score, secured credit card options are also available. By getting a secured credit card, customers have the opportunity to build and improve their credit score. The main aspect of a secured credit card is that it is specifically offered against a fixed deposit placed by the customer with a bank or financial institution.
Similar to a secured loan, this type of credit card is backed by collateral. The bank exercises control over the secured card, and in cases of suspected fraud or default, the bank has the right to forfeit the associated FD.
Secured credit cards work similarly to regular credit cards, but with one major difference, they are backed by collateral, often in the form of fixed deposits, to reduce the card issuer’s risk. Secured credit cards prove to be beneficial for individuals with limited or poor credit history. Thus, they present an accessible means of boosting one’s credit score while enjoying the benefits of having a credit card. These cards are offered against fixed deposits which minimizes the risk for the credit card issuer. However, in case of late payment or non-payment, the credit card issuer reserves the right to deduct the outstanding amount from the deposit.
Benefits of Secured Credit Cards
- Generally, banks offer credit cards to customers with a favorable credit record or history. However, secured credit cards provide an opportunity for individuals without regular credit cards to develop a positive credit history. By using a secured credit card responsibly and making bill payments on time, a person can effectively build a strong credit score.
- Individuals who do not have a credit history can get this card as a means to start establishing a credit history, thereby increasing their chances of getting loan approval in the future.
- If you have multiple financial products provided by the bank, such as personal loan, auto loan, or home loan, the bank is inclined to lend you the loan at comparatively lower interest rates.
- Customers opting for secured credit cards do not have to pay any additional charges other than the processing fee. This type of card enables cardholders to earn interest on their fixed deposits as well as increase their credit limit.