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Secured cards can help you build your credit score

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Today securing credit is not a mean task. Gone are the days when your ability to repay would be the only binding criteria for credit. Like a student who is awarded admission in a reputed institution only on the basis of his progress report, which gives an idea of her ability to present the knowledge she is expected to deliver, today, for every credit-seeker, there is Credit Information Bureau India Limited (CIBIL) credit report. It is a report that gives details of all transaction done by you related to repaying credit. Repaying on time and before due date naturally enhance your CIBIL score. While most recent borrowers may be aware of CIBIL, there are very few of them who know that a CIBIL score of over 750 is a clear indication that you are conscientious borrower. Unquestionably today if you intend to secure credit, a CIBIL score is a must.

As we speak about the importance of having a CIBIL score, at any given point in time, there is a category of individuals, who are into a sticky situation. These are those who have a very low CIBIL credit score. This can be due to defaults on loans availed in the past. These individuals now have realised the importance of high credit score, but now no bank wants to give them any credit. So, they cannot do much to improve their credit score and invariably get in touch with us. Let us see if there is a way out of this difficult situation. A magic wand that can help you deal with this situation is 'the secured cards'. For the beginners, these are a type of credit card. They function like any other credit card issued by banks. The only difference here is the credit limit. In Secure Cards, the credit limit is set against the fixed deposit you have kept with the bank. The bank does not take any credit risk while issuing you a credit card.

Let us see how it works. The bank asks for a fixed deposit from you. If you make a fixed deposit of Rs 1,00,000 the bank will issue you a credit card with a limit of say 60 percent to 70 percent of this fixed deposit amount. So you get a credit card with a limit of Rs 60,000 to Rs 70,000, depending upon the bank's rules. Since the credit card has got an asset the fixed deposit to back it, it is known as 'secured credit card'. The credit card holder can use this credit card like any other card. The rate of interest on these cards is lower than the other unsecured credit cards. However, on all other parameters the secured credit cards are as good as other unsecured credit cards.

If the credit cardholder does not pay the credit outstanding, the bank has the right to liquidate the fixed deposit and recover money. Banks allow individuals to a threshold where the outstanding amount including interest is below the fixed deposit amount. Thus, the bank safeguards its interest. In this process the credit card holders enjoy a credit card facility which can be a payment mechanism too. In a period of six months to one year the secured credit card outstanding if paid on time before the due date, the credit cardholder builds a sound credit history and earns high credit score. It is a win-win situation for both the bank and the credit cardholder. Hence, you get a credit card and a good credit score. The bank on the other hand gets a fixed deposit and credit card. These credit cards can also be used by individuals who do not have a credit history and want to build credit history - typically those who have just got a job and may go for a home loan after couple of years.

Banks nowadays are making conscious efforts to help individuals to access credit facilities by offering secured credit cards. Axis Bank, Development Credit Bank, and ICICI Bank are among many banks that offer such secured credit cards. Hence, it is important for you to make the most of these credit cards, and build a strong credit history and earn a high credit score.

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      2. ICICI Prudential Regular Gold Savings Fund
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