A credit score of an individual indicates the likelihood of default on bill payments or delayed payments. The better the credit score, higher the odds for the best offers on credit cards. Lending institutions are reluctant to issue a credit card to individuals struggling financially and lacking the required credit score. Secured credit cards have emerged as a credible solution and the best credit card for people with a low credit score.
Secured credit cards are backed by a cash deposit. This deposit serves the lenders as collateral against any default on payments. The deposit is seized if the debt is unpaid from the secured cardholder.
1. Your credit limit on the card decides the deposit amount.
Each secured credit card comes with its minimum and maximum credit limits. The security deposit requirements also differ that can be as low as a few hundred or several thousand, depending on the credit limit with a secured card. The lender can increase the credit limit if you make on-time payments against your secured credit card bills.
2. Secured card approval is easier than an unsecured one.
Secured loans are like collateral against a credit for lenders. On the other hand, unsecured credit cards come with a risk of default. Therefore, lenders issue a secured one easily.
3. A security deposit is only used if there is a default.
The amount an individual deposits as collateral to secured credit cards is entirely refundable. The lender may refund the deposit in full if the cardholder does not default on bills, or it may be upgraded to an unsecured card.
4. It helps to stay on easily repayable tracks.
A lending institution offers a secured credit card against high risk, and therefore it may ask for a higher interest rate comparatively, even if the cardholder is making a security deposit. Therefore, the cardholder will want to meet urgent financial needs only and make timely payments to avoid unnecessary interest accumulation. This keeps spending as well as bill payments on track.
5. Secured cards act as an emergency backup.
Even if your credit history is poor or non-existent in the financial books of credit bureaus, you can obtain a secured card and keep it as a backup to meet sudden financial obligations. You can use your credit card for a cash advance. For cash from credit card facility, you need to pay a fee.
6. Secured cards come with the same convenience as traditional credit cards.
Secured cards are accepted anywhere like traditional or unsecured credit cards and therefore offer the same convenience. You can use them for the same intents as you would use a traditional unsecured card.
7. Secured cards also earn rewards.
You can earn rewards and incentives with your secured cards. If you make timely bill payments, the lender may offer your more appealing terms and better rewards on your card.
8. Establish or improve your credit score
A secured credit card can be a stepping stone toward improving your credit score. It can be used as a financial tool to establish a credit history or boost credit score as they are typically reported to credit bureaus to evaluate the credit history of a cardholder. They help cardholders establish or improve credit history in a controlled environment as these cards are issued with limited credit. Also, It will help to avoid making impulse buys.
- The key to improving credit score using a secured credit card is to use it responsibly.
- Keep the credit utilization or debt-to-credit ratio low on your card. Ideally, keep it at 30% or less.
How to get a secured credit card
Like any other card, you need to apply online to get a secured credit card to complete the process quickly.
- Decide your credit limit and make the deposit. The credit limit is 90% of your deposit amount. The credit limit can go from Rs. 9,000 to Rs. 16,00,000.
- Get your card within 7 – 10 working days.
No additional documents are required to get the best credit card against a deposit.
Thus, a credit card is a handy financing option to meet planned or urgent expenses. Also, It is the most commonly accepted payment mode globally, allowing cardholders to enjoy its benefits and receive rewards or cash backs. Also, Leave the hassles of carrying cash to pay bills and get support from lenders while determining your creditworthiness and eligibility for further credit.