When it comes to personal finance, it is good to be aware of the various credit options available to you. One of these options is a Secured Credit Card. This is particularly beneficial for people who want to build or repair their credit score– e.g., newly independent young adults and people who are getting over financial hardships.
In this blog post, we will explore the features, functions and benefits of a Secured Credit Card.
What is a Secured Credit Card?
A Secured Credit Card is a type of Credit Card issued against a cash deposit (generally in the form of a Fixed Deposit) from the customer. This serves as security for the Card and usually establishes its credit limit. The available credit limit of a Secured Credit Card is often equal to the deposit amount, preventing Cardholders from exceeding their spending limits. This makes Secured Credit Cards very different from Unsecured Credit Cards, which are not secured and rely purely on the credit history of the Cardholder.
Secured Credit Cards are a great solution for people who don't have the credit history or have too low a credit score to qualify for regular Credit Cards. By offering collateral, Cardholders reduce the Card issuer’s risk, which makes the Card approval straightforward.
How a Secured Credit Card works
A Secured Credit Card is issued against collateral such as an FD. This deposit is used as security by the Card issuer if you don't pay your Credit Card bill. You can use your Secured Credit Card to make payments and purchases just like any other Credit Card. By paying the bills of your Secured Credit Card on time, you can create or rebuild your credit history. You might even be allowed to upgrade to an Unsecured Credit Card if you use your Secured Credit Card prudently. Thus, a Secured Credit Card can be a good gateway to improve your credit score and get access to better financing possibilities.
Features of Secured Credit Cards
Secured Credit Cards from ICICI Bank are a great way to get a Credit Card in case you are new to credit or have a poor credit history. Below are their key features:
Hassle-free Approval: Easily avail a Credit Card against your ICICI Bank Fixed Deposit without a separate application process
Easy Process: Enjoy a simplified process, as most details are taken from your existing FD
Attractive Credit Limit: Get a credit limit of up to 100% of your Fixed Deposit amount
Builds Credit History: Regular usage and timely payments can help you build or improve your credit score.
How to build credit with a Secured Credit Card
Building your credit history with a Secured Credit Card is very simple if you follow these steps:
Start by using the Card for everyday purchases and paying off the bill fully each month. It demonstrates responsible credit use and helps improve your credit score over time.
Ensure your expenses are within your credit limit
Always make payments on time
Monitoring your credit report regularly can help you track your progress
With consistent use and timely payments, you can establish a positive credit history. Some Secured Credit Cards might even offer the opportunity to upgrade to an Unsecured Credit Card as your credit history improves.
Benefits of a Secured Credit Card
In comparison to Unsecured Credit Cards, Secured Credit Cards are easier to obtain- even those with poor or no credit scores can obtain the Card. This is because the security deposit lowers the Card issuer's risk.
Improving one's credit score is a major benefit of a Secured Credit Card. Credit Bureaus receive reports of timely payments made by the Cardholder which gradually raise the credit score.
Additionally, compared to cash or Debit Cards, Secured Credit Cards provide a safer option for purchases. A higher level of protection is provided by the Cardholder's immunity from liability for unauthorised transactions, in the event of a theft or loss of the Card.
To further increase the usefulness of the Card, several issuers reward prudent use of the Card by increasing the credit limit without requiring additional collateral (deposit).
Selecting the best Secured Credit Card
ICICI Bank offers secured Credit Cards against a Fixed Deposit, combining credit-building benefits with premium features. The available variants include the ICICI Bank Instant Platinum Chip Credit Card, ICICI Bank Secured Coral Credit Card and ICICI Bank Secured Rubyx Credit Card.
The Instant Platinum Chip Credit Card comes with no joining or annual fee and offers reward points along with a fuel surcharge waiver. The Secured Coral Credit Card provides lounge access, movie offers and milestone rewards. The Secured Rubyx Credit Card offers welcome vouchers, airport lounge access, golf privileges and enhanced lifestyle benefits. These variants allow customers to enjoy rewards and privileges while building their credit profile securely against an FD.
FAQs
1. What is a secured Credit Card and how does it work?
A secured Credit Card is a Credit Card that is issued against a Fixed Deposit (FD). You need to open an FD with a bank and the FD amount becomes your credit limit for spending money on your Credit Card.
2. Why should I consider a secured Credit Card?
These Cards help build or improve your credit score, provide secure transactions and give the benefits of a regular Credit Card without requiring you to have a high income or prior credit history.
3. Who should apply for secured Credit Cards?
If you are someone with no or low credit score, then you can apply for a Secured Credit Card. You must open an FD as security against which the Credit Card will be issued.
4. What are important things to keep in mind when getting a Secured Credit Card?
The major things to consider are the FD amount, interest rates, fees and credit limit offered by the bank. It is important to use the Card responsibly and avoid missing payments to build a good credit score.
5. What are the benefits of choosing a secured Credit Card?
Getting a secured Credit Card can help you build or improve your credit history, get access to carrying out online and international transactions, earn reward points and enjoy the convenience of a Credit Card, even if you don’t meet the income or credit history requirements of normal Credit Cards.
6. Are there any downsides to secured Credit Cards?
The main downside is that your credit limit depends on the FD you have held with the Bank. Interest and fees may apply if you carry unpaid dues (balances) on your Card. Also, building your credit history might take time.
Conclusion
Secured Credit Cards provide a route to better financial health with perks like quick approval and credit building potential. Do your research, evaluate your options and choose a Secured Credit Card that best fits your budget.