Why Secured Credit Cards Are the Smartest Way to Build Credit

A secured credit card is a type of credit card that is issued against a fixed deposit (FD). Credit cards against FDs work like regular credit cards and are designed for consumers who are new-to-credit or have a poor credit score.

You can apply for these cards by opening an FD as per your budget and avail credit card benefits while building or rebuilding your credit profile. The FD amount determines your credit limit and acts as collateral in case you default on any payment, which minimizes the risk for issuers.

Unlike unsecured credit cards, which rely on your creditworthiness, secured cards offer an opportunity to build credit even with no or low credit history.

Here is how you can build or rebuild credit with secured credit cards while availing benefits on daily spends:

Easy Approval for First-Time Credit Users

One of the major challenges in availing any credit product is having a credit history. Since secured credit cards are offered against a fixed deposit (FD), they usually do not require income proof or an existing credit history to be eligible. The FD amount minimizes the risk for issuers, and in case you default on a payment, the amount can be deducted from the FD. Credit cards against FDs can be the right option for consumers with low or no credit history who are looking for a way to build or rebuild their credit profile.

Helps Build a Credit History

Credit cards against FDs work like regular credit cards. Paying bills on time and maintaining financial discipline can help you build a strong credit history. However, you should note that even with credit cards against FDs, missing a payment can negatively impact your credit score as banks report your credit activities to credit bureaus, which affects your creditworthiness. Over time, regular usage and timely repayments help you build a positive credit history and improve your credit score.

Earn Rewards and Cashback

Similar to regular credit cards, secured credit cards also offer rewards, cashback, and other benefits on your spends. With credit cards against FDs, you can earn reward points or cashback across multiple categories such as travel, shopping, dining, and even UPI spends. However, most secured credit cards like IDFC FIRST Earn, SBM ZET, and RBL QuickPay are entry-level cards and come with basic benefits. On the other hand, cards like IDFC FIRST WOW! Black and Tata Neu HDFC Infinity offer better benefits such as complimentary lounge access, higher reward rates, complimentary memberships, and more, allowing you to build credit while maximizing your savings.

Upgrade to an Unsecured Credit Card

Once you establish a good credit history through timely payments and financial discipline, you may become eligible to upgrade to an unsecured credit card. However, approval depends on the issuer’s internal policies and eligibility criteria. Besides this, a strong credit score can also help you qualify for unsecured credit cards with better benefits.

For New-to-Credit Consumers:

Whether you are new-to-credit or recovering from past credit challenges, credit cards against FDs are a practical and low-risk option to improve your credit. With responsible usage over time, these cards can help you become eligible for unsecured credit cards and better loan options, making them an effective first step in your long-term credit journey.