Santa Claus comes around just once a year. In the meantime, there are Credit Cards.
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    What is a Secured Credit Card?

    Credit cards are an indispensable part of life, these days. Thanks to them, no one carries a huge wad of currency in their pockets. No matter the amount, a credit card pays all bills, be it utility, shopping or phone. There are two types of cards - normal and secured. Normal credit cards are a type of unsecured loans available to credit card users, since they are unprotected by collateral. On the other hand, a secured credit cards is provided against an asset, namely fixed deposit or any other savings. In case of non-payment, this asset can be forfeited to the lender

    A secured credit card comes with a cash collateral deposit that becomes the credit line for that account. One of the most important criteria of a secured credit card is that it is issued only against a fixed deposit with any bank of financial institution. Secured credit card is offered to an individual who is unable to obtain a normal card and has a fixed deposit account with that specific bank. Such cards are secured since the bank has the right to liquidate the fixed deposit account to recover debts, in case there is a default on payments. The cardholder cannot close the fixed deposit account till the secured card is in his possession. Generally a bank offers a maximum cap of 85% against the fixed deposit. Such cards work similar to the normal credit card and interest can also be earned on the fixed deposit. Apart from the fixed quotient, such a card works exactly like a normal credit card and you continue earning interest on the fixed deposit.

    Currently in India, certain private sector banks such as Axis Bank, Kotak Mahindra Bank, ICICI Bank, and a few public sector banks namely State Bank of India (SBI), Syndicate Bank, Central bank of India, provide the option to avail secured credit cards against fixed deposit accounts. Generally, banks provide credit cards with a cap of anywhere between 80-100% of the actual value of the fixed deposit.

    Who Can Avail Secured Credit Card?

    A secure credit card can be availed by individuals who:

    • Are not employed
    • Have a monthly income that is lower than the minimum income cap, set by the bank
    • Have a low CIBIL score
    • Is working in a ‘blacklisted company’, as specified by the bank
    • Is residing in an area that is in the blacklist

    What are the advantages of a secured credit card?

    There are a number of benefits of availing a secured credit card, apart from the fact that it can be used as any other normal credit card. A few of them have been mentioned below:

    • Help build credit history
    • Banks usually decide on issuing a credit card, based on the applicant’s credit history. With the help of a secured card, an individual can build his credit history, even if he doesn’t own a normal card.
    • Improve your credit score
    • Banks generally don’t accept credit card applications in case the individual has a low CIBIL score. By opting for a secured card, the person can build his credit score by providing a healthy report of proper card usage and paying bills on time.
    • Increase credit limit and earn interest on the FD
    • Opting for a credit card against the fixed deposit doesn’t have any extra charges except for the processing fee. In this way, the cardholder can increase the credit limit and also earn interest on the FD account.

    Points to Remember

    It is always essential to take proper care while opting for a secured credit card. Here are some things that the applicant should remember:

    • One of the main features of a secured credit card is to improve the cardholder’s CIBIL credit score and credit history. Make sure all details are reported to CIBIL, by the bank.
    • Do a thorough groundwork on fees charged by the bank, such as processing fees, annual fees etc. Choose the bank that offers the best deal at a reasonable fee.
    • Get a deal where the fixed deposit can earn interest while being held as security for the credit card.

    A secured credit card availed against a fixed deposit has a credit limit of 80% of amount in the fixed deposit. Once the card is opted for, the amount in the fixed deposit will act as a loan till the card is handed over to bank.

    The interest rate on this card will be lower than what is offered on regular credit cards. The bank meanwhile can recover unpaid credit by dissolving your fixed deposit. This offers a win-win situation for both the borrower and the lender.

    Cards are issued with minimum requirements for the customers. In general, if a bank offers this product, you can easily avail a credit card without the associated credit checks such as credit score, repayment history, defaults in the past etc. – issues that inhibit easy dispersal of credit cards to customers.

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