While credit cards help you easily manage financial transactions, you must meet certain eligibility parameters to be eligible for them. A good credit score is one such term, and it isn’t easy to have a score above 750. That’s exactly where secured credit cards come into play, as they require you to pledge a deposit as collateral. In case you have a poor credit score or a low credit history, you can easily get a secured credit card.
You may get confused between a secured and a prepaid credit card. While a secured credit card operates against collateral, a prepaid credit card functions similar to a gift card.
Here are the main differentiating factors between prepaid and secured credit cards:
Secured Credit Card
Prepaid Credit Card
A secured credit card is issued against a collateral
No collateral is needed when issuing a prepaid credit card
Funds are not pre-loaded in the card
Funds are pre-loaded in the card
Usually acquired by people with a zero-credit history or very poor credit score
Any customer can apply
Threat of incurring debt or losing collateral if payments are not made on time
Relatively safe since you can only transact up to the prepaid limit on the card
Similar to a regular credit card, a secured card also has its share of advantages and disadvantages. Here’s a quick preview of the pros and cons of such a credit card.
Secured credit cards can be acquired even if you don’t have any income
The credit limit of secured credit cards is usually low
Individuals with low credit scores can also get these credit cards
The fixed deposit that you pledge as collateral is forfeited if you fail to clear off your unpaid outstanding bills
Such cards can improve your credit score
In certain cases, these cards offer far better rewards than other categories of cards
With technological advancements, you can now get a contactless secured card. These credit cards have an inbuilt chip that uses radio waves to complete your transaction. You are required to tap or wave your contactless card near the card reader.
Your card information is transmitted through radio waves to the POS machine using Radio Frequency Identification (RFID) technology. For instance, the Bajaj Finance RBL Bank Platinum Plus SuperCard uses RFID technology to complete your transactions. Here’s a look at the benefits of this contactless card:
Easy completion of a transaction using the RFID chip
Option to also use the Europay, Mastercard, Visa (EMV) chip
Up to 50 days of interest-free ATM withdrawals
Up to 90 days of interest-free emergency loans
Discounts, waivers and free complimentary access to airport lounges
While secured credit cards are ideal to begin your credit journey, you need to consider the following points before getting them:
High interest rates may be levied on these cards due to the risk factors associated
Low credit limits when compared to the unsecured type
You can get a credit limit less or equal to your FD value
Defaults on credit card bill payments may result in the liquidation of fixed deposits
So, take into account the factors mentioned above before planning to apply for a secured credit card.
You can only get a secured credit card by pledging collateral via a fixed deposit. However, different banks provide various categories of secured credit cards with different credit limits and features.
You must immediately contact your bank’s credit card services, usually, a toll-free number, to report the loss of your card.
The minimum deposit for a Secured Credit Card would differ from bank to bank. You can get in touch with your bank’s credit card customer care support to enquire about the minimum deposit required for getting one.
Yes. If you make the payments on your Secured Credit Card on time, you can improve your credit score eventually
Secured credit card is issued against a collateral. The deposits are generally cash deposits, FDs, or other assets. The type of acceptable collateral for a Secured Credit Card could differ from one bank to another. If you can provide the necessary collateral accepted by the bank, you can qualify for a secured credit card.
If your credit card issuer sees that you have been regular with your credit card payments and have achieved a respectable credit score, and meet all the credit card eligibility criteria, you can request your credit card issuer to convert your Secured Credit Card to a regular credit card.
The decision regarding how long you can use a secured credit card rests with you. In case your card expires, you can request the bank to provide you with a secured credit card with renewed validity.
Yes. Secured credit cards work in the same way as regular credit cards. Therefore, failing to clear off all the outstanding dues before the due date may lead to interest being levied on the unpaid outstanding amount. The rate of interest applicable for a secured credit card, however, is dependent on the type of card you get.
This limit is decided on the basis of the collateral provided against it. Hence, it is important that you make your credit card bill payments on time, as any default on payment can lead to the amount being deducted from the collateral.
A secured credit card is accepted at all online and offline stores, fuel stations, supermarkets, restaurants, hotels, and so on. You can use it as a regular credit card at every Point of Sales (POS) system.
The credit limit depends on your total FD value or the value of the security pledged. The higher the value of the collateral, the higher the limit you are likely to get.
If you are someone whose credit scores are currently very low, making you ineligible for a variety of credit facilities, getting a secured credit card may help. As you continue to use your card, you develop a credit history in the process. Each time you pay your outstanding dues in full on time, your credit score gets a positive boost.
However, remember that even with a secured credit card, it takes time to improve your credit score. Depending on how low your credit score is, it may take up to 6 months for you to see a noticeable positive effect. So, always use your credit card responsibly and pay your bills on time.