A few years ago, Raj, a 28-year-old IT professional living in Bangalore, found himself in a bit of financial trouble after missing a few payments on his credit card. His credit score took a hit, and now he’s struggling to get approved for a new credit card or loan. However, Raj recently came across the option of a secured credit card, which got him thinking: Why should I consider a secured credit card?
In this blog, we’ll explore what secured credit cards are, how they work, and most importantly, why you should consider a secured credit card—especially if you’re like Raj and need to rebuild your credit score or have difficulty getting approved for regular credit cards. We’ll also look at how secured credit cards can benefit anyone looking to responsibly manage their finances in India.
What Is a Secured Credit Card?
Before we answer the question, Why should I consider a secured credit card, let’s first understand what it is. A secured credit card is a type of credit card that is backed by a fixed deposit (FD) or some other form of collateral. In simple terms, you’re borrowing against your own money. The amount of the fixed deposit usually determines your credit limit, which can range from 75% to 100% of the deposit value.
For example, Raj opened an FD worth ₹50,000 with his bank and received a secured credit card with a credit limit of ₹45,000. If he defaults on his credit card payments, the bank can dip into the FD to recover its money.
Why Should I Consider a Secured Credit Card?
There are several reasons why someone like Raj, or anyone looking to improve their financial standing, should consider a secured credit card. Let’s explore the key benefits:
1. Helps Build or Rebuild Credit History
The most compelling reason to consider a secured credit card is to build or rebuild your credit score. In Raj’s case, his previous credit card defaults led to a poor credit score, making it difficult for him to get approved for new lines of credit. A secured credit card offers him a chance to prove his creditworthiness again.
Since secured credit cards function just like regular credit cards, your spending, payments, and overall credit behavior are reported to credit bureaus like CIBIL. As Raj uses his card responsibly—by paying bills on time and keeping his credit utilization low—his credit score gradually improves.
Tip: If your goal is to improve your credit score, make sure you pay your secured credit card bill in full each month and avoid maxing out your credit limit.
2. Easier Approval with Lower Credit Risk
One of the primary reasons Raj couldn’t get a new credit card was because of his low credit score. However, secured credit cards are easier to obtain because they are backed by collateral. Since the bank has a security deposit (your FD), the risk to the bank is minimal.
For anyone who’s been denied a regular credit card due to insufficient credit history, a secured credit card is an excellent way to start. Banks in India like SBI, ICICI, HDFC, and Axis Bank offer secured credit cards that are linked to your fixed deposit. So, even if you don’t have a stellar credit score, approval is likely as long as you can provide the FD.
3. No Need for Extensive Income Proof
When Raj initially applied for unsecured credit cards, he was required to submit income proof, such as salary slips and tax returns. For someone who is self-employed or doesn’t have a regular income, this can be a major roadblock.
The good news is that secured credit cards don’t require you to show extensive income proof. Since you’re putting down a fixed deposit as collateral, the bank is not as concerned about your income level. This is particularly helpful for students, freelancers, or small business owners in India who may not have the regular income flow that most banks require for unsecured credit cards.
4. Access to Credit and Benefits
A common misconception is that secured credit cards don’t offer the same benefits as regular credit cards, but that’s not true. Like Raj, you’ll have access to the same perks—such as reward points, cashback offers, and discounts—that regular credit cards provide. Raj used his secured credit card to earn reward points on everyday purchases like groceries and online shopping, while also enjoying discounts on dining out and travel bookings.
Additionally, secured credit cards are often treated the same as any other credit card when it comes to merchant acceptance. Raj could use his secured credit card wherever credit cards were accepted, including online and offline stores, and even for international purchases.
5. Control Over Spending and Debt Management
Another reason why you should consider a secured credit card is that it encourages better financial discipline. Since the credit limit is directly tied to your fixed deposit, you’re less likely to overspend. For Raj, having a lower credit limit based on his FD meant he was more conscious of his spending habits.
If you’re someone who tends to overspend or struggle with debt, a secured credit card is a great way to enjoy the benefits of credit while keeping yourself accountable. You can start with a small deposit, ensuring that your credit limit remains manageable and that you don’t accumulate excessive debt.
6. Risk-Free Credit Card
From the bank’s perspective, offering a secured credit card is relatively risk-free because they hold your deposit as security. In the worst-case scenario, if Raj were to default on his payments, the bank could use his fixed deposit to settle the outstanding dues. This risk-free nature of secured credit cards is why banks are more willing to approve them for individuals with poor credit history or no credit history.
For consumers, this also means that using a secured credit card responsibly poses minimal risk to their long-term financial health. Since the credit limit is limited to the amount of the FD, the chances of spiralling into unmanageable debt are much lower.
Also Read: What are the Different Types of Credit Cards in India?
Why Secured Credit Cards are a Great Tool for Financial Growth
Raj’s decision to get a secured credit card proved to be a smart move for him. Within six months of using the card responsibly, his credit score improved, and he became eligible for regular, unsecured credit cards again. Moreover, he continued to use his secured card for its rewards and benefits, while keeping his debt under control.
Secured credit cards aren’t just for people with bad credit—they are also a great tool for young professionals, students, or those new to the workforce who want to build credit from scratch.
In conclusion
If you’ve been wondering, Why should I consider a secured credit card, the answer lies in the flexibility and opportunities it offers to build or rebuild your credit score. Whether you’re recovering from past financial setbacks or simply looking to establish good credit, secured credit cards provide a low-risk, high-reward way to do so. Just like Raj, you can take control of your financial future with responsible credit card use and watch your credit score improve over time.
FAQs
- Why should I consider a secured credit card over an unsecured credit card?
Secured credit cards are ideal for individuals with poor or no credit history. They offer an easier path to approval, help you build or rebuild credit, and provide access to rewards and benefits, just like unsecured cards. - How does a secured credit card work in India?
A secured credit card is linked to a fixed deposit (FD) you open with the bank. The FD acts as collateral, and your credit limit is determined based on the deposit amount. You can use the card just like any regular credit card, and your credit activity is reported to credit bureaus. - Will using a secured credit card improve my credit score?
Yes, if you use your secured credit card responsibly by paying bills on time and maintaining low credit utilization, it will positively impact your credit score over time. - What happens if I don’t pay my secured credit card bill?
If you fail to pay your secured credit card bill, the bank can recover the amount from your fixed deposit. However, this will negatively affect your credit score, so it’s important to make timely payments. - Are secured credit cards available to freelancers and self-employed individuals?
Yes, secured credit cards are a great option for freelancers, self-employed individuals, or anyone without a regular income, as they don’t require extensive income documentation for approval.
