Here is How Secured Credit Card Could Help You Build or Rebuild Your Credit Score

As per data released by the Reserve Bank of India, approximately 10.30 million cards were added to circulation in India between May 2018 and 2019. Given the wide array of benefits associated with the usage of credit cards, its popularity is increasing among Indians. A significant advantage for which individuals can apply for a credit card is that it improves the CIBIL score of users, helping them enjoy faster approval and lower interest rates on loans availed in the future.

Avoiding a secured credit card against fixed deposit is one of the most effective ways in which individuals can build their credit scores, especially if they have no past borrowing history. Such cards are also extended to individuals with a below-par CIBIL score, as the fixed deposits act as collateral.

As secured credit cards do not involve extensive background checks and analysis of credibility of applicants, you can apply for a credit card to develop a good CIBIL score, or improve a reduced score.

How do secured cards help in increasing the average score?

Credit cards availed against fixed deposits come with spending limits of up to the deposit amount. Individuals can increase their credit score through appropriate management of finances and transacting through secured cards in the following ways –

1. Timely repayment before the due date

Timely repayment of the credit availed is crucial to ensure the creation of high credit scores in the name of a cardholder, as it establishes him/her as a credible user. Another benefit of repaying your credit card debt of existing dues is that no interest charges are levied on the credit availed, thereby, allowing individuals to enjoy higher spending limit at no associated expenses.

2. Maintain credit utilisation ratio

Credit utilisation limit should be kept at almost 30% of the total limit sanctioned to cardholders, as it ensures timely repayment of all bills generated with minimal financial strain. A lower credit utilisation ratio hence increases the creditworthiness of borrowers, as it minimises the chances of defaults on total due amount.

3. Know about the associated charges

Before you apply for a credit card from renowned financial institutions, know about the costs associated with maintenance of such cards, joining fees, along with annual percentage rates.

For example, feature-rich credit cards like the Bajaj Finserv RBL Bank SuperCard levy a 2% charge on ATM withdrawals and nominal annual fees. You can also avail a personal loan against the card with a no-interest tenor of up to 90 days.

4. Check credit card bill thoroughly

One of important things to know about credit card bill payment is that cardholders should analyse the statement carefully to ensure no discrepancy between the total bill due and the actual amount spent. Any wrongful debits should be reported directly to the respective financial institution for immediate rectification.

Aside from these pointers, cardholders can also opt for auto-debit of the bill amount from linked bank accounts, thereby eradicating the chances of a missed due date. Hence, a credit score of such individuals is likely to rise through the usage of secured cards.

Credit cards against fixed deposits are popular among individuals having no credit history as well as applicants having a history of defaults, as they are readily approved. Credit limits on such credit cards are capped at the total value of deposits maintained with a financial institution and are renewed monthly. 

You can apply for a credit card against FD directly through the website portal of a stipulated financial institution, to increase your spending capacity at no additional charges, whilst simultaneously enhancing your CIBIL score.