Anubhav, a simple man, always dreamed to make it big in life. Alas, destiny had other plans. Struck by a spate of misfortune, he was financially broke and burdened by debt that led to a poor credit score. He had to cancel his earlier credit cards, sell his home and shifted to a rented apartment. But his will was still strong. Penny by penny he began to recover. He now wanted to improve his credit score. Will he be given a second chance?
Yes! Of the several ways used to improve CIBIL score, one is using a Secured Credit Card. A secured credit card is just like any other credit card with the exception that the issuing company will keep a deposit as collateral, most likely a fixed deposit. It functions exactly like any other credit card.
That means, you charge your credit card but it does not get deducted from your bank account or the collateral that you have deposited. You will be sent a credit card statement. You will also enjoy a credit period as the payment date will be at the end of the monthly credit cycle. And most importantly making timely payments on the card will have a direct positive impact on the credit score as these reports too are sent to the credit bureau.
Some of the banks in India that offer this card are:
ICICI Bank – ICICI Bank’s Coral Credit Card Against Fixed Deposit
State Bank of India – SBI Advantage Premium Credit Card, SBI Advantage Plus Card
Kotak Mahindra Bank – Aqua Gold Card
Axis Bank – Insta Easy Credit Card
And many other banks too..
It is easier for people with a low credit score to get a secured card as it is safer for the issuing company as well. Since the company takes a deposit from the borrower, they feel more secure towards recovery of payments. In most cases the credit limit is half of (50%) or equal (100%) to the amount of deposit taken by the company. For example, if you have given Rs. 20, 000/- as deposit, you can enjoy a credit of anywhere between Rs. 10, 000/- to Rs. 20, 000/- depending on the issuing bank or company. In case of any default in payments, the company has the right to recover the payment from your deposit with the bank. However, with a good and timely payment record this limit may be increased without asking for further deposit in-lieu of the limit increased.
One important distinction is that a secured credit card is neither the same as a debit card nor as a prepaid card. In a debit card, as you make payments using your card the amount is immediately deducted from your linked bank account. Whereas, in a prepaid card, one can use the card only up to the amount preloaded in the limit of the card. There is no credit enjoyed in any of the two options. And most importantly, it does not help to enhance credit score.
Everything about a secured card is like a normal credit card. You can use it to make payments at retail outlets, use it over internet, over phone or even to withdraw cash from any of the ATMs. The rate of interest on these cards is lower as compared to that on unsecured cards.
In case you are still wondering on how to increase your CIBIL points, then a secured credit card is the answer to your question. Make small charges on your secured credit card, make timely payments in full. Regularly make sure these reports are sent to the credit bureau. As soon as you are eligible for an unsecured credit card, you can surrender your secured card and get your security deposit back.
The most vital point to bear in mind while taking up a secured credit card is to make sure that you make small charges on your card, ones that you can pay back in full, despite a higher credit limit and keep a track on your information to be sent to the bureau. After all the whole point of taking up a secured credit card is to have increase CIBIL score.
This is by far one of the best ways to improve your credit score fast and ideal for those who either have no credit history or a poor credit background. Be a patient and responsible credit user.
Happy Credit to you!