Pros & Cons of FD-backed Credit Cards

1. 100% Approval

Applying for a secured credit card will guarantee you 100% approval. Since the credit card is backed by an FD amount the lenders will approve the credit application. This will help you to build your credit score by timely paying the bill in time. 

• Even if you are new to credit, secured cards can be your best companions. As, you don’t need an extensive credit history to get started.
• Several banks issue secured credit cards without asking for an income proof as the credit card is backed by a collateral amount, so it reduces the risk for lenders. 

 2. Build or Repair Your Credit Score

The responsible use of an FD-backed card enables you to build your credit history.

• Your on-time payments get reported to credit bureaus which helps you establish a positive credit record.
• Your credit score will improve through responsible usage which includes making timely payments and maintaining low credit utilization.

3. Potential Upgrade to a Regular Credit Card

Most banks permit customers to convert their secured cards into unsecured cards after they show proper card usage.

• Your FD will be returned to you after the upgrade process is completed.
• You can obtain better credit options which do not require you to provide upfront collateral.

4. Earn Rewards While Building Credit

FD-backed cards provide cashback and rewards options which enable you to build your credit while availing benefits.

• Cards like IDFC FIRST WOW! Black Credit Card offers reward points and cashback which are equivalent to those offered by unsecured cards.
• The additional card advantages enable you to access discounts and fuel benefits and online shopping perks which vary depending on your card type.

5. Your FD Continues to Grow

Your FD keeps increasing in value. Your deposit functions as collateral but generates interest which enables your funds to increase while you use the card.

1. Requires an Upfront Deposit

To get started, you must lock in a fixed deposit.

• Deposit range: The bank requires a deposit between Rs. 1,000 and Rs. 50,000 or higher depending on the specific card type and bank policies. 
• Limited liquidity: You cannot use this money until you close the card or upgrade to an unsecured card. 

2. Limited Selection

FD-backed cards are fewer in number compared to unsecured credit cards.

• Fewer options: Limited choices when it comes to rewards, fees, and features.
• Bank-specific availability: Not all banks provide secured card options.

3. Limited Access to Premium Benefits

Premium credit cards with high rewards, travel perks, or concierge services are usually unavailable.

• Examples: Only a few high-benefit options exist, such as the IDFC FIRST WOW! Black Credit Card or Tata Neu Infinity Credit Card.
• Limited luxury perks: Expect fewer lifestyle or exclusive travel benefits compared to regular premium cards.

Conclusion

FD-backed credit cards serve as the perfect starting point for beginners who want to build or rebuild their credit. Banks offer credit cards backed by FD for consumers to build their credit score while earning rewards and accumulating interest through their fixed deposit account. The requirement of an upfront deposit and limited card features may not suit everyone. For individuals who want to build their credit through responsible credit usage FD-backed cards provide a low-risk solution which enables them to qualify for standard credit cards.