Boost Your Credit Score – Use Secured Credit Cards!
Updated on November 30, 20184 mins read
Ms. Raghavan, 22, recently applied for a credit card in Vijaya Bank. She recently started working after she graduated. Surprisingly, the bank rejected the application for the credit card. Lately, banks have been rejecting loan and credit card applications, especially applications by youngsters who are aged 18-24. The dismissal of these applications is mainly because of no credit score. Up to 12-14% of the credit card applications get declined every year! Your Credit Score plays a crucial role in the credit card approval process. A low credit score does not look good in your portfolio, and could be the main cause why your credit card got declined. Lenders keep a minimum cut off score of 650-700; and approve credit card applications of those above this score. Anybody below this score is not rated as creditworthy, and thus there is a chance that banks might reject an application below this certain score. The solution to building your credit score is: Apply for a secured credit card! Here’s everything you need to know about a secured credit card:
What is a Secured Credit Card?
A secured Credit Card is Card that is issued by a bank on securing your fixed deposit account as collateral. This means that if you default on payments, the banks can deduct the amount from your fixed deposit. If you cannot pay your dues, the bank has the authority to even confiscate your fixed deposit account.
Which Banks issue Secured Credit Cards?
Banks that offer Secured Credit Cards in India are:
SBI Dena Bank: SBI Dena Credit Card is issued against FD in Dena Bank
Development Credit Bank etc.
What are the Essentials of a Secured Credit Card?
The advantage of a Secured Credit Card is – Obtaining one is very simple. Here are a few things you should know about a secured credit card.
1. Fixed Deposit Account:
Generally, the credit card is backed up by a fixed deposit account. For example, you need a minimum balance of Rs. 20,000 in ICICI Bank to get a secured credit card. The minimum balance for Kotak Aqua Gold Card is Rs. 25,000. Banks put a credit card limit from 50%-100% of the fixed deposit amount. ICICI allows up to 85% credit limit, while Kotak allows a limit of 80%. Note that once you pledge your fixed deposit account, you cannot withdraw any cash from it. Foreclosure of your FD will lead to the cancellation of the card and additional fees will be applicable. Any late payments and default in payment will be deducted from your deducted from your fixed deposit account with added interest. Your Fixed Deposit will be placed on an auto renewal mode, unless specified by the bank. (Note: You cannot convert a Secured Credit Card to a normal credit card, as it is a different product offered by the bank)
2. Fixed Deposit Tenure:
The minimum fixed deposit tenure required can vary from 6 months to 2 years, depending on the bank. ICICI Bank allows a minimum of 6 months.
3. Bank Charges:
Bank Charges such as processing fees, etc. to issue a Secured Card might be applicable. Please check the charges applicable before taking the card.
Documentation required for a secured credit card is very less. All you need is an identity proof if you are a new customer. If you have an existing relation with the bank you do not need any documentation.
Secured Credit Cards help to build your Credit History:
Unlike normal credit cards, banks do not look at your credit score before issuing a secured credit card. This is one of the best benefits of a secured card as it can be a difficult task to seek credit from banks when you have a low credit score. Choosing a secured credit card over a normal credit will have a positive effect on your CIBIL score. Banks may reject an application for a loan if you do not have a credit score (score of 0 or -1). If you do not have a credit score, it means you do not have any history of availing credit. Obtaining a secured credit card is a simple task as it requires minimum documentation. Hence, secured credit cards can be handy to build your credit history. It is beneficial for people who have just started working, especially for those with a low income. This can help them build a good credit history, so that later, they can take higher loans easily. Though a secured credit card comes with added benefits, you should make sure you use it wisely. Defaulting on credit card payments and late payments will have a negative effect, which will only worsen your credit score. It is advisable to use only 35% of your credit card limit on a monthly basis. Availing excessive amounts of credit might show credit hungry behaviour. Regular payments and availing decent amounts of credit is the formula to build your credit score. Building your score is not an overnight process and it might take a few months to yield any results. Patience and Punctuality is the key to build your credit score! To know more about improving your credit score, please read: 7 Effective Tips On Fixing A Bad Credit Score!
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