How Secured Credit Cards Can Improve Your CIBIL Score
Last Updated : June 18, 2016, 11 a.m.
In spite of the sincere marketing efforts shown by the credit card providers, there is no denying on the fact that the credit card penetration was not great in the year 2014-2015. Well, one of the prime reasons behind this slow growth is the tough screening parameters being used for selecting the credit-worthy applicants. However, apart from CIBIL score , the credit card providers don’t prefer to extend the credit to the applicants until and unless the monthly gross income of the applicant is found satisfactory.
Thus, in such a scenario, owning a secured credit card is surely a worthy option for many. But, before going any further, let’s try to understand what these secured cards basically stand for?
What are Secured Credit Cards?
Normal credit cards are known as the unsecured loans for the lenders as they are not protected by the collateral. Whereas, the secured credit cards are offered against an asset which you can forfeit to the lender, in case of non-payment.
A bank will be more than happy to offer a credit card to an individual who is not eligible to avail the normal card and someone who has opened a fixed deposit with the bank against his opened fixed deposit. Thus, such a card is considered secured as one will do the default on payments, the bank will immediately liquidate the FD against which it has given you the card in order to recover the debts.
Not only this, in fact, you cannot close the FD till the time you hold that secured credit card. Usually, banks cap the maximum credit limit to 85% of the FD amount. However, apart from the fixed quotient, such type of card works just like a normal credit card, and due to which you can continue earning the interest on the FD.
For Whom a Secured Credit is a Good Option?
Well, owning a secured credit card is no doubt a great option for someone who:
- has low CIBIL score
- is not employed
- has a lower monthly income than the minimum income set by the banks
- is residing in a blacklisted area
- is working with a company that comes under the blacklisted category
What are the Advantages of a Secured Credit Card?
- Helps in improving your credit score – If a bank is not accepting you application for credit card due to the low CIBIL score of yours, a secured credit card helps you in building your credit credibility with the help of displaying the financial discipline, reporting of a healthy card usage and by paying bills on time.
- Helps in building your credit history – If you have no credit history, a bank can decide against issuing you the normal credit card. Once you use a secured credit card, it allows you to build your credit history, and making you eligible for the normal credit after some time.
- Helps in increasing your credit limit while receiving the interest on FD – If you are already having an FD with a bank, why you are not opting for a security credit also? Yes, it will not cost you a single penny, besides the processing fee, if it is applicable. And, through this way, you can easily increase your credit limit while earning the interest on fixed deposit.