Secured Credit Card: Credit Building Tool You Need To Know About
A secured credit card is a well-known and reliable way to build your credit score. These days, many people want to enjoy the benefits of loans and credit cards but don’t have high enough credit scores to be eligible. This may be mostly due to insufficient credit history.
This is where a secured type of credit card comes in handy. This card is your gateway to building a credit score, proving your financial reliability, and unlocking opportunities that were once out of reach. Here is a brief explanation of why choosing it could be a smart move in your credit-building journey.
What is a Secured Credit Card?
It’s one that requires a security deposit. Since it is issued against a fixed deposit, it’s also called an FD-backed credit card. Here are some of its features.
The deposit acts as collateral for the card issuer in case you default on the bill payment
Issuers may give you 100% or a fixed percentage of your deposit amount as the credit limit
You can apply for it even if you have a limited or poor credit history
It is ideal for people who are new to credit
You can get this card instantly by opening the FD without much hassle
Difference Between a Secured and an Unsecured Card
To better understand how it differs from traditional cards, here are some points.
Credit limit
The secured credit card’s limit is based on the security deposit whereas an unsecured card's limit varies and depends upon creditworthiness.
Eligibility
You can get a secure credit card even if you do not have past credit card or loan experience. Thus, it does not need a credit score and even with zero past experience, you can avail of one. In comparison, the unsecured card needs a high score.
Interest rates
Secured credit cards have higher APRs compared to unsecured ones. In the case of annual fees, the secure credit card is usually free of any kind of joining fee, whereas an unsecured card has high annual fees.
Deposit required
An unsecured card does not require a security deposit but a credit score of at least 700. In contrast, a secured card requires a security deposit but not a credit score.
Why Choose Secured Credit Cards?
They are designed for credit buildup, i.e., they help build or rebuild your credit history
Using these types of credit cards might be helpful in building your credit knowledge and financial discipline, especially if you are a newbie
Responsible use of this card can help you qualify for an unsecured card
Benefits and Drawbacks of Secured Credit Cards
While these cards have simple eligibility criteria, there are potential drawbacks to may have to face. First of all, you have to deposit a good amount in your FD account to ensure you have a limit that supports your monthly purchases.
Here is a brief comparison of the benefits and drawbacks of using this card:
Factors to Consider When Applying for a Secured Credit Card
Take note of these factors while choosing an FD credit card.
Credit Limit: Save up to invest a good amount in the deposit. The amount in your FD account is your credit limit. This way, you can avoid maxing out and facing hefty interest charges. Also, this will help increase your credit score.
Interest Rate (APR): Carefully analyse the terms and conditions of your credit card. Credit cards with low APRs are proven to be helpful in the long run. Know that secured credit cards may have high APRs.
Fees: Some secured cards have annual fees. Also, watch out for late payment charges, foreign transaction fees, and cash advance fees.
Benefits: Although it is less common, some secured cards provide rewards such as cashback or points. Be cautious and spend only what is necessary to earn these rewards.
Paying your bill on time, keeping your balance low and monitoring your balance improves your credit score. Using a secured credit card makes all this easy. You can start with the One Credit Card.
This card offers all the essentials you need to start your credit journey. It comes with both secured and unsecured types. Backed up by a powerful app and straightforward terms, this card can be the right choice if you are a beginner.
It also provides 5X shopping rewards in the top two spending categories. These points never expire, so you can use them at your convenience. Additionally, you can get many exciting deals and offers, a credit card loan, no-cost EMIs and add-on credit card benefits. Apply now to unlock new credit opportunities.
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