Pros and Cons of Secured Credit Cards

Credit cards have become increasingly popular due to their financial flexibility and wide spectrum of offers and discounts. Whether you want to go shopping or buy electronics, with a credit card in your wallet, you can cover any transaction while enabling you to maximise savings. However, most credit card issuers are hesitant to issue credit cards to applicants with no or poor credit, insufficient income, geographic constraints or job profile. For such applicants, issuers have come up with secured credit cards.

Secured credit cards are issued against fixed deposits and cater to the needs of those who have non-existent credit histories or have poor credit profiles. The credit limit of secured credit cards is set on the basis of the fixed deposit value offered as collateral. Most credit card issuers usually offer credit limits of up to 85-100% of the FD value, while cash withdrawal limits can go up to 90% of the fixed deposit value.

Let us walk you through the benefits of secured credit cards and what factors work against such secured cards.

Pros of Secured Credit Card

• A secured credit card is offered instantly as approval does not depend on your credit score or monthly income. You just need to open a fixed deposit with the bank as this reduces the credit risk for the credit card issuer
• You can build/improve credit score with secured cards from the scratch by following corrective measures. For instance, repay your credit card by its due date or convert your dues into EMIs if you are unable to pay.
• Fixed deposit pledged as collateral with the respective bank continues to earn higher FD interest for you. The cards also offer an interest-free period on credit card spends.
• The secured credit card leads to higher capital efficiency as it offers easy access to funds in times of financial shortfalls. Thus, avoid you to prematurely close your FDs and incurring premature withdrawal penalty in the process.
• You can improve your credit card eligibility for unsecured credit cards and increase your chances of availing loan as your credit score gets improve. Transactions made through such cards are reported to credit bureaus which helps credit bureaus in calculating the credit scores of the credit card holders. In India, there are four major credit reporting bureaus: TransUnion CIBIL, Equifax, Experian and CRIF Highmark.

Are you looking for a secured credit card with a higher FD interest rate and 90% of credit limit? Then your search ends here. You can apply to Step Up Credit Card co-branded with SBM Bank India Ltd, with no annual fees. Cardholders can earn FD interest on SBM Bank FD.

Cons of Secured Credit Card

• Higher finance charges in comparison to an unsecured credit card on the non-repayment of the secured credit card bill by their due dates
• Lack of diverse choices, fewer discounts and offers on a secured credit card as compared to regular credit cards. Most card issuers offer multiple varieties of unsecured credit cards targeting different customer segments and spend types, like reward cards, premium credit cards, fuel cards, travel cards, co-branded shopping cards, etc.
• Fixed deposit will be unretrievable till you pay the last rupee of the secured card’s bill.