Credit score is one of the most crucial financial parameters that banks/NBFCs take into consideration while offering you credit cards, personal loans, home loans and other financial products. In layman’s terms, credit score is the numerical representation of how well you manage your debts. A good credit score improves your eligibility for loans and credit cards.
Usually, a credit score of 750 or above is considered as good and those having lower credit scores usually have lower eligibility. Some lenders also charge higher interest rates to those having lower credit scores. Those having existing loans or credit cards can improve or build their credit score through timely repayment and other credit healthy behaviours. However, for those who do not have any existing loans, taking a fresh loan for just building a credit score may not be a wise idea as that would incur interest costs.
Availing of regular credit cards for improving credit scores could be difficult for many as banks desist from approving credit cards to ‘New-to-Credit’ consumers or those having a poor credit scores. Plus, there can be other factors like lack of adequate income, location constraints, ineligible occupation or employers’ profiles, etc act as constraints in availing regular credit cards. The best option for such individuals would be to avail a secured credit card.
What are secured credit cards
Secured credit cards are similar to unsecured credit cards with the only difference being that secured credit cards are backed by a fixed deposit (as collateral) opened with the bank. As these FD(s) are lien marked by the bank, one cannot close those FDs until he surrenders his secured credit card. The issuer bank can also close FD(s) in the event of default. These almost eliminate reduce the credit risk of the issuer bank, thereby leading them to offer secured credit cards to almost all irrespective of credit score, job profile, occupation, income or location.
Just like regular credit cards, credit cards against FD also offer reward points, discounts, gift cards, etc. on the credit card’s transactions. These cards also offer an interest-free period on credit card spends and levy finance charges on the non-repayment of the bill by their due dates.
Students, graduates, housewives or individuals with no or poor credit scores can apply for secured credit cards and earn rewards on them. These cards not only help to build a credit score but also the pledged FD continues to earn interest for you.
Read More: Pros and Cons of Secured Credit Cards
Tips to build/improve credit score with secured cards
Credit bureaus get information on defaults/delayed repayments of credit card outstanding from credit card issuers. These bureaus then mention such facts in your credit report which lowers your credit score accordingly. However, timely repayment of your secured and unsecured credit card bills would be considered a positive trait by the issuers and bureaus will steadily increase your credit score. Thus, it’s better to always treat your credit card like a debit card and use it to that limit where you can comfortably repay by the bill due date.
Let us walk you through some of the tips that you can use to improve or build your credit score:
- Repay your credit card by its due date
- Convert your dues into EMIs if you unable to repay outstanding by the due date
- Avoid taking multiple secured/unsecured credit cards within a shorter period
- Usually the credit limit is 70%-80% of the deposit. Top up your limit on reaching 75% of your credit limit
- Keep track of credit score at regular intervals and in case any error arises, report those errors to the credit bureau and the respective bank for rectification. A rectified credit report may register a higher credit score.
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Factors to consider before applying for secured credit card
Make sure the secured card you choose has the best offers you need and also keep an eye on the terms and conditions of the credit card. Look into the following factors before applying to make the best use of the secured card:
- Fixed deposit amount, tenure, and FD interest rate
- Top offers that meet your purpose of taking the card
- Credit limit; Higher the FD amount, higher will be the credit limit
- Finance charges/revolving credit (charged when you fail to clear dues before the due date)
- Check the information on joining, annual or renewal fees
- Ensure that your card’s monetary value should be higher than other fees such as joining/annual fees
Additional Benefits of Secured Credit Card
- FDs liened for your secured credit card continue to earn interest for you
- Helps you to increase your liquidity by accessing funds without prematurely closing your fixed deposit
- Easy to get as approval rates for secured credit cards are much higher as compared to unsecured credit cards
- Helps to build credit scores for those with no credit history in the past or have a poor credit score
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Build/Improve Credit Score with Step UP Credit Card
Step UP Credit Card co-branded with SBM Bank India Ltd, is a secured credit card issued against fixed deposits opened with SBM Bank (India) Ltd. The card is designed for building or improving credit scores of individuals who are New to Credit (NTC) or have low credit score, inadequate income, location constraints, and job profiles. The card allows users to earn more than 6% p.a. interest from their SBM FDs for a tenure of 367 days which is one of the highest FD rates available for this tenure.
One can apply for Step UP Credit Card across all locations in India as the application and onboarding process is completely digital. The joining and renewal fees are NIL. Apart from earning interest on FD, the cardholders can avail attractive Rupay card offers and simultaneously can earn 1 reward point on every Rs 100 spent. Additionally, no income verification or credit score check is required.
Comparison of Different Secured Credit Cards
|Secured Credit Cards||Bank Name||Minimum FD amount||Credit Limit||Finance charges||Annual Fees|
|Step UP Credit Card||SBM Bank (India)||Rs 2,000||90% of FD||36% p.a.||NIL|
|811#DreamDifferent||Kotak Mahindra Bank||Rs 10,000||90% of FD (Rs 9,000 to Rs 16 lakhs)||42% p.a.||NIL|
|NRI Royale Signature Credit Card||Rs 1 lakh||80% of FD||37.2% p.a.||Rs 1,000|
|Freedom SuperCard||RBL Bank||100% of FD||47.88% p.a.||Rs 999 (from 2nd year)|
|SBI Unnati Credit Card||State Bank of India||Rs 25,000||–||33% p.a.||NIL for first 4 years|
|MY Zone Easy Credit Card||Axis Bank||Rs 15,000||49.36% p.a.||Rs 500|
|Privilege Easy Credit Card||Rs 65,000||–||49.36% p.a.||Rs 1,500 (from 2nd year)|
|Insta Easy Credit Card||RS 20,000||80% of FD||34.49% p.a.||–|
|ICICI Bank Instant Platinum Credit Card||ICICI Bank||Rs 20,000||–||29.88% p.a.||NIL|
|Coral Credit Card Against Fixed Deposit||Rs 30,000||–||40.8% p.a.||Rs 500|
|PNB Visa Signature Credit Card||Punjab National Bank||Rs 1.6 lakhs||80% of FD (Rs 1.25 lakhs to Rs 15 lakhs)||19.56% p.a.||Rs 2,000 p.a.*|
|Millennial Credit Card||Rs 65,000||80% of FD (Rs. 50,000 to Rs 10 lakhs)||19.56% p.a||Rs 999 p.a**.|
|YES Prosperity Rewards Plus Credit Card||YES Bank||Rs 30,000||–||29.88% p.a.||Rs 399|
|YES Premia Credit Card||Rs 2 lakh||–||29.88% p.a.||Rs 999|
|YES FIRST Preferred Credit Card||Rs 3 lakh||–||29.88% p.a.||Rs 999|
|UNI CARBON||Union Bank of India||75% of FD||41.75% p.a.||Rs 499|
|RuPay Platinum||41.75% p.a.||Rs 299|
|RuPay Select||41.75% p.a.||Rs 499|
|VISA Gold||41.75% p.a.||Rs 299|
|VISA Platinum||41.75% p.a.||Rs 399|
|VISA Signature||41.75% p.a.||Rs 1,999|
|Credit Card Against FD||Canara Bank||Rs 10,000 to Rs 25 lakh||2% p.m.||–|
|Cent Aspire Credit Card||Central Bank of India||100% of FD||–||–|
*waived on spending Rs 3 lakhs in the previous financial year
**waived on spending Rs 1 lakh in the previous financial year