Learn Everything about Secured Credit Cards and How they Work?

If you apply for credit cards, you’ll come across its two types – unsecured and secured. Unsecured credit cards are the commonly availed ones as you don’t have to provide any collateral.

On the other hand, secured credit cards are sanctioned against collateral, specifically a fixed deposit. The credit card limit will either be equal to or less than the fixed deposit amount. The lender will seize that fixed deposit in case you default on your payments.

Although you run the risk of losing your collateral, secured credit cards are exceptionally beneficial if you want to improve your credit score.

Financial institutions require customers to have a CIBIL score of 750 or above to apply for an unsecured card. You can get credit cards with a low score but those will not have lucrative features. Furthermore, you also cannot apply for collateral-free advances like a personal loan. Hence, having a healthy CIBIL rating is crucial and a secured card can help you do that precisely.

How to improve your credit score with such cards?

• Use the card regularly

Your CIBIL score and credit report is built only when you use the card. Keeping it idle will not improve your score. Hence, make sure to use the card every once in a while.

• Keep the credit utilisation under 30%

As mentioned above, your secured card will come with a credit limit. Ensure not to spend more than 30% of that limit. Doing so makes you credit hungry and lowers your CIBIL score.

• Pay your bills in time

Paying the bills within the due time creates a positive impact on your credit score.

• Always pay the total amount due

You get the option to pay either the minimum amount or the total amount due on your credit card payment. Lenders usually base the minimum amount on a specific percentage of the full amount. This amount can also include the interest.

Paying the minimum amount is a viable alternative if you don’t have the necessary funds to pay the total. However, this will lower your CIBIL score. So, always try to pay the full outstanding due.

How do secured credit cards work?

Secured credit cards work in the same way as the unsecured ones.

They come with:

• Grace period

The grace period is the interest-free time which you get to pay off your bills.  

• Interest rates

The interest rates are charged on your outstanding dues if you don’t clear the bill within the grace period.

• Fee and charges

Secured credit cards can incur the following charges:

1. A one-time fixed-rate annual fee.
2. Renewal fee for renewing your card every year.
3. A cash advance fee for withdrawing cash from ATMs.
4. Finance charges levied on the outstanding balance.
5. Late payment fees charged if you don’t pay the minimum amount within the due date.
6. Foreign transaction fee for making any international purchases.
7. Surcharges for specific expenses like railway ticket booking.
8. Over-limit charges levied if you spend more than your credit limit.

There may also be several other charges depending on the financial institution.

• Features and benefits

A secured credit card can offer you the following features and benefits:

1. A specific percentage of fuel surcharge waiver on spending a fixed amount on fuel at selected or any fuel pumps across the country.
2. Fraud liability cover up to a specific limit.
3. Discounts on dining when eating from partner restaurants in selected or all cities.
4. Discounts on movie tickets up to a particular limit a fixed number of times per week/month.
5. Reward points on every online and offline spending.

Apply for RBL credit card online to build your credit score wisely. You can also opt for cards like the Bajaj Finserv RBL Bank SuperCard. It combines the power of 4 cards in one and comes with various industry-first features. It also comes with pre-approved offers that lower the time taken for availing finance.