If you are one who has a low CIBIL score or no prior credit history, that’s where secured credit cards come into the picture. They are a great financial tool designed for those who struggle to get approval for a regular credit card. Let’s understand in detail.
A secured credit card is a special type of card that you get by making a security deposit, usually in the form of a fixed deposit (FD) with a bank. This deposit acts like a backup for the bank, so they feel safer giving you a credit card even if you have a bad or no credit history.
The credit limit on your secured credit card is based on the amount you deposit in your fixed deposit (FD). For example, if you have a ₹50,000 FD, the bank might give you a credit limit of about ₹40,000 to ₹45,000. If you don’t pay your credit card bill, the bank can take the money from your FD to cover the amount you owe.
A secured credit card works like a regular credit card, but there's one big difference: your credit limit is tied to your fixed deposit (FD). Here’s how it works, step by step:
To get a secured credit card, you first need to open a fixed deposit (FD) with the bank. The amount you put in the FD usually decides how much credit you get on your card. Banks often give you a credit limit of 70-90% of the FD amount.
Once the FD is set up, the bank issues you a secured credit card linked to your FD.
The card functions like any other credit card—you can use it for purchases, online transactions, and bill payments.
The credit limit is set based on the FD amount. For example, with a ₹50,000 FD, you may get a credit limit of ₹40,000.
You can use the card for transactions up to this limit and repay the amount before or on the due date.
When you use your secured credit card and pay on time, it helps improve your CIBIL score. These on-time payments are reported to credit bureaus, which makes your credit profile look better.
If you default on your credit card payments, the bank can liquidate your FD to recover the outstanding amount. This minimizes the risk for the bank, allowing them to offer a credit card to customers who might not qualify for unsecured credit.
A secured credit card is an ideal solution for specific categories of people:
If you’ve never had a credit card or loan, you might not have a CIBIL score or credit history. A secured credit card is a good way to begin building your credit.
If you’ve had problems with loans or credit cards before and your credit score is low, using a secured credit card wisely can help you improve your score over time.
For young people starting their first jobs, getting a regular credit card can be tough. A secured credit card is a safer way to learn how to manage credit.
If you're self-employed and don’t have a steady income, banks might be unsure about giving you a regular credit card. A secured credit card is a good option, as it allows you to access credit while reducing the bank's risk.
Secured credit cards have many benefits that make them great for people who want to build or improve their credit history.
One of the most important advantages of a secured credit card is that it’s easier to get approved for, even if you have a low CIBIL score or no credit history.
By using your secured credit card responsibly, you can really improve your credit score. This will make it easier for you to access loans, larger credit limits, and better financial products in the future.
Because the card is linked to a fixed deposit, banks usually charge lower interest rates on secured credit cards than on regular ones.
You can use a secured credit card for everyday purchases, online shopping, and bill payments, just like a regular credit card. This provides financial flexibility while ensuring you are building credit.
After using a secured credit card carefully for a while, banks will let you switch to a regular credit card. This usually happens when your credit score goes up and you show good payment habits.
Applying for a secured credit card is simple and can be done in just a few steps:
Banks offer secured credit cards, such as ICICI Bank, SBI, Axis Bank, HDFC Bank and other top banks.
Compare the interest rates, features, and fees to choose the best bank for you.
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Once you’ve selected a bank, you’ll need to open a fixed deposit account. The minimum FD amount varies from bank to bank but mostly ranges from ₹10,000 to ₹20,000.
Fill out the secured credit card application form, either online or at the bank branch. You’ll need to provide your personal information, FD details, and any required documents like your PAN card, Aadhaar card, and address proof.
Once your FD is set up, the bank will review your application and issue the secured credit card. The card is usually dispatched within 7-10 working days.
Once you receive your card, start using it responsibly to build or rebuild your credit score.
| Aspect | Secured Credit Card | Unsecured Credit Card |
|---|---|---|
| Collateral | Requires a fixed deposit as collateral | No collateral is required |
| Credit Limit | Linked to the FD amount (70-90% of FD) | Based on income, credit score, and other factors |
| Eligibility | Easy approval for people with low/no credit | Requires a good CIBIL score and credit history |
| Risk for the Bank | Lower risk due to FD backing | Higher risk as there’s no collateral |
| Interest Rates | Lower interest rates | Higher interest rates for people with low credit |
| Credit Building | Helps build or improve credit | Requires existing credit history |
In short, a secured credit card is a helpful tool for people who want to build or fix their credit history. You put down a cash deposit as security, which lowers the risk for banks. This allows you to show that you can use credit responsibly. It helps those with little or bad credit get access to credit and improve their credit score over time. Knowing how secured credit cards work helps you make smart choices, leading to better financial stability and more chances for credit in the future. They can be a good first step toward better credit management and financial independence.
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A secured credit card is a type of credit card backed by a cash deposit you make with the bank. This deposit acts as collateral, making it easier for those with no credit history or poor credit to get a card.
When you open a secured credit card, you deposit money into a fixed deposit account. Your credit limit is usually a percentage of this deposit. You can then use the card like a regular credit card, but you need to make timely payments.
A secured credit card requires a cash deposit as collateral, while an unsecured credit card does not. Unsecured cards are typically given to individuals with established credit history.
Using a secured credit card responsibly—like making on-time payments—gets reported to credit bureaus, helping you build or improve your credit score over time.
If you don’t pay your bill, the bank can take the money from your cash deposit to cover the outstanding balance.
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