What are secured credit cards? 3 key scenarios when you should consider applying for them

Have you ever come across someone who is not eligible for a credit card because they have a poor or no credit history to build credit. Or the applicant has an income which is lower than the minimum eligibility criteria for the card?

Well, this is not unusual. In such cases, banks tend to offer a secured credit card. Those who are not aware – secured credit cards are offered against the collateral of a fixed deposit (FD) which is opened in the same bank.

Suppose Ajay is not eligible for a credit card because he does not have a job. So, the bank has now offered to give him a secured credit card which has a credit limit of ₹5 lakh for which he needs to open a fixed deposit of the same amount with this bank.

As he uses the card, and clears his bills on time, his credit score will gradually develop, thus enabling him to apply for a regular credit card at a later date.

In case he fails to clear his bill, the bank will be able to use the money deposited in a fixed deposit towards the credit card payment.

Some examples of secured credit cards:

I. SBI Card Unnati: This zero fee card can be opened with a lien on cardholder's fixed deposit opened with SBI of ₹25,000 or more.

II. ICICI Bank's Coral Credit Card Against Fixed Deposit: This card can be issued against ICICI Bank Fixed Deposit of ₹50,000 or more, with a minimum tenure of 180 days. A lien is marked on the fixed deposit and 90 percent of the amount of the Fixed Deposit is issued as a credit limit of the card.

You can consider credit card in these scenarios:

1. No credit history: When you do not have a credit score because you don't have a history of bill payments and credit cards, you have no choice but to apply for a secured credit card.

2. Not eligible: Suppose you are not eligible for a credit card because your income is lower than the minimum requirement for the card. The bank -- therefore – makes you an offer to accept a credit card, which is secured against a fixed deposit. The amount of money deposited in the FD works as collateral.

3. Step towards regular card: Sometimes when you are unable to convince the bank to issue you a credit card for whatever reason, you can use a secured card as a step towards building your credit score. And once you have a good credit score, you can apply for a credit score at a later stage.

To sum up, we can say that secured credit cards are a good way for those individuals who have poor or no credit history to build their credit.

(Note: Using a credit card carries its own set of risks)