A secured credit card is a card which is backed by a payment which is used as collateral. A secured credit card is usually offered to the people who do not have a credit history or have a limited credit history by still require a credit card.
Banks provide these secured credit cards to their customers to help them build their credit profile. The credit card is issued only after a certain amount is paid to the bank and that amount usually acts as the credit limit of the card.
The major difference between a secured credit card and a prepaid credit card is the credit history of the customer.
A secured credit card is given to a customer who have a limited credit history or none and is usually given to build up their creditworthiness. The bank has a secured card to a customer in exchange for a certain amount of money to deposit as collateral. This deposit which is made becomes the credit limit of the provided card. The credit limit can be increased by adding sufficient funds to the account or if you have a good repayment history, the bank will add a certain amount to your monthly limit.
On the other hand, a prepaid credit card has no collateral involved. As the name suggests, it is prepaid and comes with a credit limit provided by the bank depending on a number of factors. These factors are the credit report of the customer, the credit score, and payment records which showcase the ability or inability of the customer to repay the amount spent.
If you do not have sufficient credit, a secured credit card is the safest option as they do not charge high rates of interest like an unsecured credit card and do not have a high annual or joining fee.
However, for an unsecured credit card, it is advised to keep your expenses on the low and pay it back in full at the end of the month. The credit utilization ratio must be between 10%-20% at the most. Having a secured credit card means to spend wisely and not more than you can pay off.
Applying for a secured credit card is not any different than applying for an unsecured one. It is a fast and simple process as most major banks just check your credit score and do not conduct any other inquiries on your credit history or report.
Even though it is a simple process, there are few things which must be kept in mind before applying for a secured credit card.
It is very important to make sure that you do not go overboard with your credit limit. It is advised to start with a lower credit limit and then increase it only when you will be able to pay it off in full at the end of the month. If you deposit a large sum of money, it does not mean that you should spend it all. Banks will have a constant check on your spending habits, so if you have a good repayment history, banks can allocate a certain amount of money to your credit card without you making any kind of deposit.
Every bank has its own eligibility criteria when it comes to a secured credit card. While some banks require a minimum deposit required for the card, other banks need you to open an FD in the bank and that amount in the fixed deposit serves as the collateral required by the bank in case you are not able to pay your dues.
It is important to conduct thorough research on the types of secured credit cards and the ones which offer you the most benefits. Secured credit cards offer you a wide range of discounts and offers just like an unsecured card.
Secured credit cards have a number of benefits and features surrounding them and are mainly for the people who do not have enough credit history required for an unsecured or prepaid credit card.
Some of the features of a secured credit card are:
This Advantage Plus Card is among the best secured credit cards in the market. This card offers much more benefits than a regular credit card and can be used both nationally and internationally. The card offers a credit limit up to 85% of the amount deposited in the FD account.
This card offered by ICICI bank offers credit limit up to 85% of the fixed deposit. For an individual to avail the card, you will need to have Rs. 20,000 in his/her fixed deposit account for a period of 180 days.
This secured credit card is for those who have a minimum credit requirement. To avail this card, an applicant needs to have a minimum fixed deposit of Rs. 20,000 with the bank.
A good secured credit card helps you build credit and contributes highly to your credit score as well. The credit card requires a certain amount of money to be paid as deposit and that deposit is usually considered as the credit limit of your card. Timely repayment of dues results in the building of good credit which can help you apply for a prepaid credit card.
A secured credit card is offered by the bank for the sole reason of building credit for the people who do not have enough credit to apply for a prepaid credit card.
Closing any credit card will hurt your credit score. It is always advised to keep a credit card open even if you are not using it. It can always be kept for emergencies. Closing or cancelling a card can reflect poorly on your spending habits. To know more it is advised you get in touch with the bank.
Building credit with your secured credit card can only happen if you are spending wisely and not more than you can afford. By having a secured credit card, only the money you put in as deposit will be available to you as a credit limit. However, it is always better to start with smaller purchases which are easy to pay off. If you are increasing your expenditure gradually on a monthly basis, it will help you build your credit score faster.
You can keep a secured credit card as long as required. To know more it is advised you get in touch with the representative of the bank.
No, once you have given the money as a deposit to the bank, it is used as collateral for the bank in case you are not able to pay your dues. In most cases, the money as your credit limit comes from the deposit and is subtracted as an when you wish to increase your limit. Once you cancel or close your card, only then the bank will make the calculations and return the remainder of the money, if any.
You can increase your credit limit on your secured credit card by requesting the bank by contacting the customer care of the bank or by visiting the bank branch. The credit limit will be increased depending on the amount you have deposited in the bank as collateral.
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