In the day and age that we live in today, our credit score is a three-digit numerical value that is of utmost importance to us. It is a barometer of our financial health and plays a large role in deciding our fate when it comes to making an application for a fresh line of credit. When you make a conscious attempt to increase CIBIL score, you can be sure that you will get access to any credit you are looking for at competitive rates of interest. If you are attempting to build credit for the first time you can be ahead in your score improvement game by using a secured credit card. In fact, a secured credit card will also come to your aid if you are trying to improve credit score after having overcome some financial problems.
What is a secured credit card?
Before we tell how a secured credit card benefits you, let us tell you what it is all about. A secured credit card is just like a regular credit card, but it is issued against a fixed deposit. The credit limit on such cards is usually a percentage of the principal in the fixed deposit that you maintain with the bank. A secured credit card is similar in all respects of a regular credit card, save the fact that if you default on your repayment on this card, your outstanding balance is deducted from your fixed deposit amount.
Advantages of a secured credit card
The greatest advantage of a secured credit card is that it helps you build or improve your CIBIL score at a minimum risk. It is therefore recommended for people who have no past credit history and want to establish one. When you use a secured credit card, you can limit it to the maximum of 50-75% of your principal amount. As a result, there remains no room to overshoot this limit. Also, as it is issued against a fixed deposit in the first place, there is no question of walking into a debt trap with a secured credit card.
Who can use secured credit cards?
The other advantage of such a card is that there is often minimum documentation required with it as you already have an existing deposit with the lender. Parents of young adults who want their children to learn how to use credit responsibly can consider giving them secured credit cards. On the one hand, it teaches them to handle finances on their own and on the other you can be assured that you will not fall into trouble on account of their overspending as it has a cap and is also issued against a fixed deposit that will come into play just in case something goes wrong.
Alternatively, you can also consider giving a secured credit card to your aging parents for emergency use, especially if you do not live close to them. A secured credit card will give them the power to go cashless just about anywhere in an emergency or otherwise. Such a card will save them the trouble of having to carry hard cash. This is especially relevant to modern times where India is trying to move a “less-cash” economy.
Helps you rebuild your credit profile
Financial trouble often comes unannounced. You may have experienced a job loss or a have had a bout ill health that has put temporary brakes in your cash flow. In such a situation, it is likely that you have been unable to make repayments as scheduled on your existing lines of credit. In such a situation, your credit score will take a dip. Once your credit score takes a hit, it is an uphill journey. You are no stranger to the fact that it is much easier to get bad credit than to fix it. All you need to do then is to look for means to enhance credit score.
At such a time when you are desperate to restore your credit history and improve CIBIL score, a secured credit card can come to your aid. Firstly, it is easier to apply for a secured credit card with bad credit as you are offering your fixed deposit as collateral. You may be wary of taking fresh credit when you have had a chequered credit past and are seeking a credit solution.
However, a secured card is your road to redemption when you are looking for ways to improve your credit score fast. Once a secured credit card has been issued to you, do not use it to build up debt again. Instead use it judiciously by making small purchases and making full repayments in each billing cycle. A secured credit card gives you the chance of demonstrating good repayment habits, thus rebuilding your credit score bit by bit. Lastly, it is always prudent to opt for a secured credit card from an established lender as it has extensive experience in credit handling and offers a whole array of benefits.
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