Credit cards are no less than a financial genie in the form of a plastic card. It is considered one of the best financial innovations of all time. A pre-defined limit is set for the users based on their credit history and income level. From hospital bills to travel tickets, one can use a credit card to manage a wide range of urgent expenses using a credit card. There are different types of credit cards available in the market. Today, the number of credit card providers has also increased because of the growing demand for this plastic money.
Getting a credit card
Different types of credit cards reward users for their spending habits, such as travel credit cards, cashback credit cards, reward cards, etc. One should carefully pick a credit card after assessing spending patterns and consumption. It is important to note that not everyone is eligible for all cards. Although getting a credit card is easier than it used to be, you still need to meet the eligibility requirements. Different credit card issues can have varied eligibility requirements.
Since credit cards come with a pre-defined limit, there’s a system to evaluate the same. People with good credit scores and repayment history can quickly get the desired credit limit. However, those who don’t have a decent score might not get a regular credit card. If you are among this lot, it’s deplorable. However, you can constantly improve your credit score and reapply for approval. If you are in a hurry to get a card with a poor credit score, choose a secured credit card. It is essential to make credit card payments on time, regardless of the card type.
What is a secured credit card?
Secured credit cards are for people with poor credit scores who want to improve their chances of getting a card. People who frequently face rejection from credit card companies can opt for a secured credit card to avoid the hassle and disappointment. The rejection can be on any grounds, including poor credit history, low income and repayment capacity, poor track record, etc. A secured credit card can be applied by anyone as long as they meet the primary age and other requirements.
Credit card companies issue a secured credit card against some collateral amount the borrower offers. It reduces the risk of giving a card to unideal customers. Since the credit limit requires collateral from the borrower, the issuer can quickly recover the amount in case of default. Borrowers must provide security to the credit card company by offering collateral with an economic value higher than the limit.
Secured credit cards work just like other credit cards. However, there are certain restrictions on the credit limit and other terms. In most cases, an FD account is a collateral for the credit card. The limit granted on secured credit cards is always less than the FD account balance. In most cases, it is between 75 to 90% of the FD amount. For example, if you have an FD account balance of INR 2,00,000, your credit limit will be INR 1,50,000 to 1,80,000. Opt for a higher FD amount if you want a higher credit limit.
Why choose a secured credit card?
People who can’t get a regular credit card usually opt for secured credit cards. In rare cases, people opt for a secured credit card because they want a higher credit limit. However, there are multiple benefits of using a secured credit card. Let’s take a quick look at some of the most prominent ones.
1. Improve your credit score
If you have a poor repayment track record and a lower credit score, a secured credit card can be your chance to redeem yourself. You can improve your credit score using these cards by timely repaying the outstanding bill amount. Learning about your billing cycle and due date is crucial to avoid errors. Secured credit cards can help you achieve a high credit score which can help you get an unsecured credit card of your choice.
2. Fixed deposit interest income
It’s almost impossible to generate an added income with unsecured credit cards. However, secured credit cards allow users to earn decent interest on their fixed deposit investments. It’s a great way to beat the rising inflation costs and earn higher interest than a regular savings account.
3. Low-risk, high rewards
The risk of getting into a debt trap is lower with secured credit cards because customers are initially eligible for a lower credit limit based on the fixed deposit amount. Furthermore, since they have already deposited an amount, they are less likely to default on their bill payments. In addition, the best credit card companies offer lucrative discounts and reward points to their customers.