Special Features of Secured Credit Cards - Secured Credit Cards

Banks offer secured credit cards against fixed deposits as collateral. These cards are usually aimed at those who cannot avail regular credit cards due to reasons like low or no credit score, unserviceable location, inadequate income, job profile or employer’s profile.

Let’s take a look at some of the crucial features of secured credit cards

Relaxed eligibility criteria

As secured credit cards are issued against collateral in the form of fixed deposits, it reduces the credit risk of banks. In case a credit card holder fails to repay his card bill, the bank has the liberty to liquidate fixed deposits to recover outstanding dues.

Owing to this risk-free attribute, banks do not factor the applicant’s credit score, income, employment profile, unserviceable location, etc, as they do while evaluating applications for regular credit cards.

Helps in building credit score

Just like regular credit cards, transactions made through secured credit cards are reported to the credit bureaus. The credit bureaus then factor in this data while calculating credit scores. Thus, secured credit cards can be a very good tool for building or improving credit score for those having low or nil credit score, thereby, improving their eligibility for availing loans and secured credit cards in the near future.

Credit limit decided against the value of fixed deposit

Banks set credit limits of secured credit cards against the fixed deposit value used as collateral. Depending on the risk appetite of the bank, the credit limit of the secured credit card usually ranges between 80-90% of the fixed deposit value offered as collateral.

Fixed deposit used as collateral continues to earn interest

The fixed deposits used as collateral to avail secured credit cards continue to earn interest till their maturity. In this sense, availing a secured credit card is the same as opting for a loan against FD or a loan against securities wherein the borrower continues to generate returns from his securities offered as collateral.

Provide higher capital efficiency to their holders

Ability to leverage fixed deposits through secured cards also leads to higher capital efficiency for cardholders if they repay their credit card bills on time.

Cardholders can easily access credit through their secured credit card to meet their short-term financial mismatches without closing their FDs prematurely. Most banks penalise premature withdrawal of FDs by charging a penal interest rate of up to 1%. This penal rate is then subtracted from the effective rate of interest of the fixed deposit, which is usually the lower of the original booked card rate and the card rate of the period for which the FD has been in effect.

Thus, secured credit cards offer sanctioned credit line to their users and save them from incurring opportunity costs involved in premature FD withdrawal. This feature can especially be helpful for those facing frequent but very short-term cash flow mismatches.

Withdrawal from fixed deposit not allowed till card closure

As the pledged fixed deposit is lien marked by banks, secured credit card users cannot close their fixed deposit account till the card is closed or reaches its expiry. Thus, those looking to opt for secured credit cards should consider submitting only those FDs as collateral without which they can easily manage till the expiry of their secured card.

Avoid using fixed deposits earmarked for emergency funds or short-term financial goals as collateral for availing secured credit cards.

Broad features similar to regular credit cards

Just like regular credit cards, secured credit cards offer reward points, vouchers, discounts, etc on transactions made through them. Also, they offer interest free period on credit card transactions and levy finance charges on non-payment of the credit card bill by the due date.

However, the diversity and consumer choice offered by card issuers in the case of secured credit cards are not the same as regular credit cards. In the case of regular credit cards, card issuers offer numerous card types, such as fuel, travel, shopping, premium, and reward cards for targeting specific consumer requirements. In the case of secured cards, most of the issuers offer just one or two variants. This deprives secured cardholders of the freedom to select their card on the basis of their spending pattern and lifestyle.

Rebuild Credit Score with Secured Credit Cards - What is a Secured Credit Card?

Secured credit cards are quite popular and highly sought after. However, there are a few limitations to them too. In this blog, you’ll learn how to rebuild your credit score with a secured credit card, how to convert to an unsecured credit card, and much more.

What is a Secured Credit Card?

It is a type of credit card designed for individuals who are looking to build credit. However, it is often used as a result of lack of access to regular (unsecured) credit cards, as they haven't yet established enough credit score. It could be a supportive start for someone without any credit history or for someone trying to rebuild their damaged credit history. It is known as a "secured" card because it is secured by some money that you have to deposit against the card's credit limit. A secured credit card can safely hold your hand and guide you to a prosperous credit history.

Secured Credit Cards Vs. Regular Credit Cards

The only difference between the two is that a secured credit card is sanctioned against security (cash) deposit, which unsecured credit cards don't require. Secured cards often have higher fees than unsecured ones. You might have to pay an application fee and yearly subscription fees as well. The penalty APR could be quite high for these cards.

If you are wondering why, the answer is quite simple: a person who isn't creditworthy, is unreliable with credit. Hence lenders impose high interest rates on them. Apart from these aspects, secured credit cards are just like regular unsecured credit cards and function on similar terms.

How Do Secured Cards Work?

If you are looking for a chance to build or rebuild your credit, a secured credit card could be a suitable option for you. You just need to approach the bank and apply for a secured credit card. You should know that there isn't a guarantee of getting a secured card just by paying a deposit. Your documents will be scrutinized, and the application will be approved only when you meet the requirements of the issuer.

Once your application for a secured card is approved, you must pay the security deposit to get the card. The issuer sets a credit limit for you, which is secured with the cash deposit. After you make the initial deposit, secured cards work precisely like the unsecured ones. You can use the card wherever credit cards are accepted. As you make purchases, your credit utilization rate rises.

The card issuers report your monthly activities to credit bureaus - your credit score fluctuates accordingly. You must not assume that you don't have to pay monthly credit card bills since you have already paid a deposit. The deposit is for security reasons so that lenders don't run at a loss if you ever fail to repay your dues. Just like regular credit cards, you have to repay your credit card bill every month within the due date. If not, an APR is imposed on your outstanding balance.

You can use these cards judiciously to repair your credit report. In general, you should be careful with the way you are using your secured credit cards. You should always ensure a clean record of positive activities to improve your credit health. Use the card responsibly and pay your balance on time. In this way, you can build or rebuild your credit using the card. What more? You can gain and redeem reward points as well!

What are the drawbacks of a Secured Credit Card?

Secured credit cards seem to be the ideal solution to all your problems. But wait, is it?

Let's take look at the disadvantages of using a secured credit card.

• There is a greater likelihood of higher interest rates.
• Secured credit card fees are between $30 to $50.
• It gives you a low spending limit.
• The security deposit shall not be accessed until the account is closed.
  

How can Secured Credit Cards Improve Your Credit Score?

Secured Credit Cards help improve your credit score to a large extent. Listed below are the scenarios in which your credit score could benefit from a secured card.

• New Users: You must be aware of the fact that a credit card is the best way to build credit; a good credit history gives you access to better credit facilities. However, if you are new to the financial world, you might not have a good enough credit score to qualify for regular credit cards. A person with a low credit score is not creditworthy in the eyes of potential lenders. Secured credit cards come of use in such a scenario. It is easier to qualify for a secured card than the unsecured ones, because you are paying a security deposit to the lender - in case you fail to repay, the lenders have a fall-back option and won't incur a loss. If you make payments on time and maintain a perfect credit utilization ratio, your credit scores will increase for sure. Once you have successfully earned enough credit score, upgrade to a regular credit card, and follow mymoneykarma’s tips to use it efficiently.
  
  
• Rebuilding Credit: Your credit could take a severe blow due to many reasons - missed or delayed payments, delinquency, accounts in collections, repossession, foreclosure, etc. In such a scenario, your credit history would be spoilt, and you might have to rebuild it from scratch. A low credit score doesn't let you take new credit cards. How would you rebuild your credit then? Secured credit cards could be the perfect solution. It is easier to qualify for a secured credit card than the unsecured ones. If you get approval for a secured card, you could maintain a spotless credit history of low usage and timely payments to improve your credit score significantly. If your application is rejected, get help from mymoneykarma and learn. how to re-apply. Keep track of your credit score at mymoneykarma as well.
  
  
• Improving Credit: Secured cards can come to use even though you already have good credit with endless opportunities for new unsecured cards. Let's assume that you have reached the maximum credit limit that you are entitled to, yet you wish to increase your credit limit by another Rs.2,00,000. Unsecured credit cards might not help you here as your request won't be approved, but secured ones definitely will. You could make a security deposit of Rs.2,00,000 and reap the benefits of a bigger credit limit.

How Do I Convert to an Unsecured Credit Card?

If you maintain a steady and clean credit history, your secured card can be considered for an upgrade. Most issuers have their terms and conditions which you need to qualify to upgrade. If you maintain a history of timely payments and low credit balance, you are more likely to get an upgrade soon.

A few secured credit card issuers review your account after a year of usage and upgrade you to a regular card if you meet the requirements. For some cards, you might have to apply for an upgrade. Once you have reached the target credit score and successfully improved your credit history, you can apply for a new unsecured credit card with another credit card issuer.

Rebuild Credit Score with Secured Credit Cards - Repair Credit Report

Secured credit cards are quite popular and highly sought after. However, there are a few limitations to them too. In this blog, you’ll learn how to rebuild your credit score with a secured credit card, how to convert to an unsecured credit card, and much more.

What is a Secured Credit Card?

It is a type of credit card designed for individuals who are looking to build credit. However, it is often used as a result of lack of access to regular (unsecured) credit cards, as they haven't yet established enough credit score. It could be a supportive start for someone without any credit history or for someone trying to rebuild their damaged credit history. It is known as a "secured" card because it is secured by some money that you have to deposit against the card's credit limit. A secured credit card can safely hold your hand and guide you to a prosperous credit history.

Secured Credit Cards Vs. Regular Credit Cards

The only difference between the two is that a secured credit card is sanctioned against security (cash) deposit, which unsecured credit cards don't require. Secured cards often have higher fees than unsecured ones. You might have to pay an application fee and yearly subscription fees as well. The penalty APR could be quite high for these cards.

If you are wondering why, the answer is quite simple: a person who isn't creditworthy, is unreliable with credit. Hence lenders impose high interest rates on them. Apart from these aspects, secured credit cards are just like regular unsecured credit cards and function on similar terms.
How Do Secured Cards Work?

If you are looking for a chance to build or rebuild your credit, a secured credit card could be a suitable option for you. You just need to approach the bank and apply for a secured credit card. You should know that there isn't a guarantee of getting a secured card just by paying a deposit. Your documents will be scrutinized, and the application will be approved only when you meet the requirements of the issuer.

Once your application for a secured card is approved, you must pay the security deposit to get the card. The issuer sets a credit limit for you, which is secured with the cash deposit. After you make the initial deposit, secured cards work precisely like the unsecured ones. You can use the card wherever credit cards are accepted. As you make purchases, your credit utilization rate rises.

The card issuers report your monthly activities to credit bureaus - your credit score fluctuates accordingly. You must not assume that you don't have to pay monthly credit card bills since you have already paid a deposit. The deposit is for security reasons so that lenders don't run at a loss if you ever fail to repay your dues. Just like regular credit cards, you have to repay your credit card bill every month within the due date. If not, an APR is imposed on your outstanding balance.

You can use these cards judiciously to repair your credit report. In general, you should be careful with the way you are using your secured credit cards. You should always ensure a clean record of positive activities to improve your credit health. Use the card responsibly and pay your balance on time. In this way, you can build or rebuild your credit using the card. What more? You can gain and redeem reward points as well!

What are the drawbacks of a Secured Credit Card?

Secured credit cards seem to be the ideal solution to all your problems. But wait, is it?

Let's take look at the disadvantages of using a secured credit card.

1. There is a greater likelihood of higher interest rates.
2. Secured credit card fees are between $30 to $50.
3. It gives you a low spending limit.
4. The security deposit shall not be accessed until the account is closed.
   

How can Secured Credit Cards Improve Your Credit Score?

Secured Credit Cards help improve your credit score to a large extent. Listed below are the scenarios in which your credit score could benefit from a secured card.

1. New Users: You must be aware of the fact that a credit card is the best way to build credit; a good credit history gives you access to better credit facilities. However, if you are new to the financial world, you might not have a good enough credit score to qualify for regular credit cards. A person with a low credit score is not creditworthy in the eyes of potential lenders. Secured credit cards come of use in such a scenario. It is easier to qualify for a secured card than the unsecured ones, because you are paying a security deposit to the lender - in case you fail to repay, the lenders have a fall-back option and won't incur a loss. If you make payments on time and maintain a perfect credit utilization ratio, your credit scores will increase for sure. Once you have successfully earned enough credit score, upgrade to a regular credit card, and follow mymoneykarma’s tips to use it efficiently.
2. Rebuilding Credit: Your credit could take a severe blow due to many reasons - missed or delayed payments, delinquency, accounts in collections, repossession, foreclosure, etc. In such a scenario, your credit history would be spoilt, and you might have to rebuild it from scratch. A low credit score doesn't let you take new credit cards. How would you rebuild your credit then? Secured credit cards could be the perfect solution. It is easier to qualify for a secured credit card than the unsecured ones. If you get approval for a secured card, you could maintain a spotless credit history of low usage and timely payments to improve your credit score significantly. If your application is rejected, get help from mymoneykarma and learn. how to re-apply. Keep track of your credit score at mymoneykarma as well.
3. Improving Credit: Secured cards can come to use even though you already have good credit with endless opportunities for new unsecured cards. Let's assume that you have reached the maximum credit limit that you are entitled to, yet you wish to increase your credit limit by another Rs.2,00,000. Unsecured credit cards might not help you here as your request won't be approved, but secured ones definitely will. You could make a security deposit of Rs.2,00,000 and reap the benefits of a bigger credit limit.

How Do I Convert to an Unsecured Credit Card?

If you maintain a steady and clean credit history, your secured card can be considered for an upgrade. Most issuers have their terms and conditions which you need to qualify to upgrade. If you maintain a history of timely payments and low credit balance, you are more likely to get an upgrade soon.

A few secured credit card issuers review your account after a year of usage and upgrade you to a regular card if you meet the requirements. For some cards, you might have to apply for an upgrade. Once you have reached the target credit score and successfully improved your credit history, you can apply for a new unsecured credit card with another credit card issuer.

Secured vs Unsecured Credit Cards - What Is the Difference Between Unsecured and Secured Credit Cards?

 Unsecured Credit Cards

The very common unsecured or regular credit card is a form of plastic money issued by a bank, or any other card-issuing company. Unlike with debit/ATM cards, where you use your own money, the amount used by the customer is loaned by the financial institution. This amount has to be repaid  - completely or in part - on a due date set at the end of a monthly billing cycle, as specified by the issuer.

Moreover, there is a limit on the amount that can be availed, and an interest is charged on the amount that is to be repaid. The customer’s credit score is heavily dependent on his/her credit card activity, and being regular in making payments is best to maintain your credit health. Otherwise, owning a credit card brings along with it the risk of landing in significant debt.
Secured Credit Cards: A Brief Introduction

A secured credit card is issued against a cash deposit. You deposit a sum of money with the lender, which acts as collateral. It is called 'secured' because the collateral serves as a security for the lenders. If you don't manage to repay the loaned amount, the lender can claim the amount to make up for the loss.

These cards are designed for people who are trying to build credit but do not have access to a regular (unsecured) credit cards since they haven't yet established enough credit score. It could be a supportive start for you if you are currently without any credit history or if you are striving to rebuild your damaged credit history.
How Do Secured Credit Cards Work?

In case you are searching for an opportunity to build or rebuild your credit score, a secured credit card could be a fitting option for you. All you need to do is to approach the bank and apply for one. Well, there isn't a guarantee of getting a secured card as soon as you pay the deposit. The issuer will scrutinize your documents and approve the application only if you qualify for the card.

Once your application for a secured card is approved, you have to pay the security deposit and get your card. The issuer sets a credit limit for you, which is secured with the cash deposit. After you make the initial deposit, secured cards work exactly like the unsecured ones. You can use the card wherever credit cards are accepted. As you make purchases, your credit utilization rate rises.

Just like regular unsecured credit cards, the card issuers report your monthly activities to the credit bureau - your credit score fluctuates accordingly. You must not assume that you don't have to pay monthly credit card bills since you have already paid a deposit.

The deposit is for security reasons, so that lenders don't run at a loss if you ever fail to repay your dues. Just like regular credit cards, you have to pay your credit card bill every month within the due date; or else an APR is imposed on your outstanding balance.