All you wanted to know about credit-builder (secured) credit cards

Everyone makes mistake sometimes, especially with our money, even more with our credit. If you are someone who handled credit poorly in the past and now have a poor credit score, all is not lost. You still have a chance to build that poor looking credit history, with a credit-builder credit card, popularly known as secured credit card in India.

Like the name suggests, it’s a credit card. But unlike a regular credit card which is an unsecured debt, here the bank asks you for collateral or a security before giving you a card.

[caption id=“attachment_578170” align=“alignleft” width=“380”]  The security is in a form of a fixed deposit you open with the bank. Reuters[/caption]

The security is in a form of a fixed deposit you open with the bank. The tenure for the fixed deposit will vary from bank to bank, but usually it’s for two years, and the minimum amount you need to make the FD for is Rs 25,000. The fixed deposit will earn a rate of interest as per the bank’s rate of interest for a regular FD for that particular tenure.

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So, while on one the hand you earn on your FD, on the other hand, such credit cards usually charge a rate of interest lower than the regular cards. Take for instance, the secured credit card with Axis Bank that charges 1.95 percent per month, that’s around 23.4 percent per annum.

Regular credit card usually charge around 35 percent to 40 percent per annum as rate of interest. Of course, the interest charge on secured credit cards vary from bank to bank and are in the range of 12 percent to 25 percent per annum.

Keep in mind the credit limit of your card will be based on your FD amount, and it’s usually in the range of 50 percent to 85 percent. Take for instance, ICICI Bank’s secured credit card offer a credit limit of 85 percent.

The other fees and charges are mostly similar to that of the bank’s regular credit card. These cards also comes in variants like silver, gold, platinum and have various features like rewards points and the like. Of late, new private sector banks have started calling a secure credit card as instant credit card, primarily because they issue it over the counter at a bank branch as soon as you make a FD with them.

A few important things to remember is that, you can renew the FD once the tenor is over and hence continue to use the card. Also, if for some reason you are unable to take care of the charges, the bank has a right to recover the pending dues from your FD. The bank will have the right on the FD amount as well as interest earned, and they will recover the card overdue charges for the FD and pay off extra balance if any back to you.

This card though is well known as a secured credit card, works very well as a credit builder. If you have a poor credit history, getting fresh credit is highly impossible. In such a case, banks are more comfortable giving you a secure credit card against an FD as collateral. Once you get this card, use this card regularly and don’t fail to make regular and disciplined payments. When you do so, you will be able to gradually improve your credit history over time. That is, it builds you credit over time.

Now that you know about credit builder card, make the most of this information.