Getting a new credit card has become easier, but issuers can still reject applications if you don’t qualify for one. Thankfully, you can still get one if you pledge an asset, like an FD. Credit card issuers do offer secured cards as an alternative, making it ideal for those new to credit.
This is a financial product that allows you to secure a credit line by providing your fixed deposits as collateral. Considering that these are slightly different to regular cards, learning about FD-backed credit cards is worth it. Here are a few insights.
What is an FD-Backed Credit Card?
A credit card issued against a fixed deposit is a secured credit card. Unlike the unsecured counterpart, the credit limit you get is backed by the value of the asset pledged. As such, you can get a credit card even if you are new to credit and don’t have a track record to prove your creditworthiness. Banks or credit card companies offer these types of cards to those looking to establish or rebuild their credit.
How Do FD-Backed Credit Cards Work?
Check the following details to understand how this financial product works:
- Fixed Deposit Requirement: You must have an existing FD to access this financial product. This deposit acts as collateral against the credit you get.
- Credit Card Limit: The credit limit is assigned based on the fixed deposit’s value. It is usually a percentage of the amount you deposit, generally going up to 90%.
- Credit Card Usage: Once you open an account for an FD credit card, you can use it for online transactions and large purchases.
- Repayment Options: Like regular credit cards, you need to clear your bills on time to avoid late charges and interest.
- Interest Rates and Other Charges: Since these cards are secured with your fixed deposit, they have lower interest rates than regular cards.
- Rewards and Other Benefits: These secured credit cards will have a similar rewards system, alongside other benefits offered by the issuer. However, some exclusive perks may only apply to higher, unsecured variants.
Why Choose an FD-Backed Credit Card
Here are some of the reasons to apply for a new credit card against an FD:
- Build Credit Score: If you are new to credit, this financial product can help you establish a credit history. Here, your responsibility is to make timely and consistent payments.
- Relaxed Eligibility: This product makes access to credit cards easier due to simpler eligibility requirements. As it is secured, issuers may not reject your application if you have a poor credit profile or are new to credit.
- Teaches Financial Discipline: To new credit cardholders, these cards can instill key lessons about financial discipline. It can teach you to be mindful of your spending and the importance of credit management.
- Affordable Rates: Since these cards are secured, they have lower annual percentage rates (APR) as compared to regular credit cards.
- Continued Returns on FD: As long as you don’t default on credit card bill payments, you’ll continue to earn interest on your FD.
Understanding How Credit Cards and Credit Scores Are Related
A credit card impacts your credit score in these ways:
- By making timely and consistent credit card bills, you can significantly improve your credit score.
- A high credit utilisation ratio, or the amount you use compared to the total credit limit, reduces your credit score over time.
- Maintaining a healthy credit mix by opting for different credit cards can help you raise your credit score.
- A longer credit card history also positively impacts your score.
How to Get an FD-Backed Credit Card
You can apply for a new credit card backed by fixed deposits by following these simple steps:
- Zero in on an issuer that offers credit cards against fixed deposits.
- Invest in a fixed deposit with the issuer or pledge the certificate as collateral.
- Fill in the application form to open a credit card account with the bank.
- Submit all the required documents, such as your identity proof, proof of residence, FD receipt, and more.
Once you submit the application, the bank or lending institution will process your request. The credit card issuer will place a pledge or lien on your fixed deposit account. The issuer will then send you the credit card, which you can start using after activating it.
If used responsibly, your FD credit card can be valuable to improve your credit score over time. It can help you upgrade to a more premium card that may offer more attractive rewards and offers. To access a premium credit card with an investment in an FD starting from ₹5,000, get the FD-backed One Credit Card.
You can get started on your credit journey and work on your credit card at the same time with this metal card’s powerful mobile application. Apply now to get easy access to credit even with a low credit score!