A few decades back credit cards were something not heard off, however in present times they are almost like a necessity for quite a few. Almost all banks offer a wide range of card variants, with different credit limits, different rewards structures, varied joining fees or no fees etc. Apart from the above differences, credit cards can differ in another aspect too; they can be either secured or unsecured. Unsecured cards are what we know as normal cards issues by card companies. Below we focus on understanding the difference between both.
Secured credit cards as the names suggests are issued against a security. So if you want a secured card the bank will ask you to have a fixed deposit with them; the card will be issued against the deposit held by the bank. The credit limit will be fixed at 60 to 70 percent of the deposit value. So if the deposit value is Rs. 80,000 then the credit limit for the card holder could be anything ranging from Rs. 48,000 to Rs. 56,000 depending on the issuer’s guidelines. Rest the card works the same as a normal credit card.
How are Secured Credit Cards Different?
The first difference is obviously the way in which these cards are issued. Secured credit cards require a deposit while other cards do not require any such deposit for being issued. For issuing an unsecured card the card issuer focuses on the credentials and the income eligibility of the applicant. The sanctioned credit limit in these cases depends on the income eligibility of the applicant. While for a secured card it will be based on the size of the fixed deposit and the card issuer’s policy regarding how much percentage of the deposit they are willing to extend as credit limit. Owing to this reason unsecured cards offer more financial flexibility to an individual.
Unsecured credit cards are meant for those with a good credit score or those who do not have a blemish on their credit report while a secured card is the opposite. It is specifically meant for those who do not have a good credit rating which will make it difficult for them to get a card in the normal course. Thus for those with a low credit rating these cards could offer a perfect solution. So if you want to get a card issued despite a low rating or are wondering on how to boost your credit score then a secured card can help you. Card issuers are assured that they have a safety net to fall back on in case the card holder defaults.
All card issuers will not issue secured cards thus the options of getting them are limited while almost all financial institutions do offer a host of variants for normal credit card. Secured credit cards may be more expensive than normal credit in terms of fees and interest rates. They are generally offered by banks that also have deposits as part of the products and services offered to its customers.
So if your credit card application is not being accepted as you have defaulted on your EMIs or dues in the past or because you have made too many loan enquiries then a secured credit card could offer you a way out. It could not only help you in getting a card but also in rebuilding your credit rating.