Getting Credit Cards without Credit Scores: Secured Credit Cards

Being bombarded with calls for credit cards is a scenario most of us has faced.

We often receive these calls based on our credit history and score. They see us as creditworthy to trust to spend the limit provided, and they earn on the charges and in our relations with the bank. But then what about people who have less than optimum credit score? Shouldn't they also have a chance to enjoy the benefits of credit cards such as lounge access, discounts, and other offers? That's why there are two types of credit cards: secured and unsecured.

What is an unsecured credit card?

We usually use unsecured credit cards. You don’t need to pay beforehand or keep any minimum balance in your account to use it. If you have used it to purchase something, you pay at the end of your bill cycle. Every bank offers credit card services and would be happy to welcome you to their services. Nowadays many offers and discounts are provided to create an edge over the competition including complimentary airport and railway lounge access, offers on online food delivery, cashback, credit points to use, and much more.

What is a secured credit card?

A secured credit card is a credit card that is backed by some collateral like a fixed deposit (FD). This is designed for customers who are getting rejected on credit card applications for many reasons. The rejections will probably be based on bad credit history, scores, income, and other reasons.

Secured credit cards have few strings attached and cannot be used as freely as unsecured ones. The critical requirement is that it needs some collateral as mentioned above. With a secured credit card, you'll need to deposit a fixed amount as collateral, usually in the form of a fixed deposit. This FD acts as security for your card usage. If you cannot pay back the amount, the card provider reserves the right to break the FD and take what they are owed. Usually, the banks provide 75%-80% of the FD value as the credit limit. However some companies offer full and sometimes more than the total value of the FD as the limit. 

For example, IDFC banks’s FIRST WOW! Credit card provides a high credit limit of at least 100% of FD value. 

Secured credit cards are provided by major banks in India such as SBI, ICICI, Kotak, etc.

Why Secured Credit Card?

• If you are facing rejection when applying for credit cards and you require a credit card, the option is to choose a secured one. 
• Secured credit cards offer quick approvals. Because they're backed by collateral, like a fixed deposit, there's no need for extensive income verification or background checks. For the same reason, banks hold significantly less risk in assigning you the card.  With the minimal documents submitted, you can enjoy the benefits of the credit card. 
• The FD you have held as collateral for the card can earn interest. So the collateral is not just held somewhere, but is also getting the interest!
• Since previous cards were rejected based on your credit score, you can use the secured cards to manage and improve your credit score.
• Since your FD is held as the collateral for the card, the usage of the card provides you with liquid money at all times. This removes the inconvenience of breaking FDs or having no cash in hand.

Why not Secure Credit Card?

• Since you require collateral to get the secured card, it becomes difficult to acquire the amount. Because in most cases the spending limit is in relation to the FD amount deposited.  
• Spending limits vary across banks and the limit for the card depends on the FD value. Most card issuers only provide around 75% of the FD value as the credit limit. So your credit limit will be less if your deposit is also less.
• The FD you have deposited cannot be released unless the credit card is canceled or the issuer finds you creditworthy. Till then, it is at the bank’s discretion to hold it as security.

Which one should I choose? Secured or Unsecured?

Choosing between either depends entirely on the circumstances and situations of the applicant.

If you have a good credit history and score, you don’t necessarily need to apply for a secured card. You can enjoy the benefits through the unsecured card. 

Unsecured ones provide better credit card limits as you can use the total mentioned amount. 

The application process for all cards happens quickly, but since you are backing the card with collateral, the documents required are minimal for unsecured cards. This makes approvals faster. 

If you have bad credit, you can use your FD to clear the debt or on a secured credit card to improve your credit score.

Secured credit cards need collateral such as FD to ensure you are responsible for your expenses. Since it has collateral, they are approved quickly with fewer documents required. Properly using credit cards, secured or unsecured, can improve your credit score and prepare you for the future. Remember, how you use your credit card is just as important as choosing the right one. Responsible use can help build your credit score and financial future.

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