In today's increasingly interconnected world, credit cards have become critical tools for managing finances, making purchases, and establishing credit histories. However, for someone with limited or damaged credit, gaining access to traditional credit cards can be daunting. This is where secured credit cards step in, offering a viable solution to those seeking to build or rebuild their credit.
What is a secured credit card?
A secured credit card is a financial product that is designed to help individuals establish or rebuild their credit. Unlike traditional unsecured credit cards, secured cards require the cardholder to make a security deposit as collateral, typically equal to the card's credit limit. This security deposit acts as a safety net for the card issuer, ensuring that in the event of missed payments, they can recover the outstanding balance from the deposit.
How a Secured Credit Card Works
A secured credit card requires a cash deposit as collateral, which typically determines your credit limit. This deposit minimizes risk for the issuer and helps individuals build or rebuild their credit responsibly.
Benefits of getting a secured credit card
- Credit building opportunity: One of the primary benefits is its capacity to assist you in building a positive credit history. By using the card responsibly and making timely payments, you can gradually enhance your credit scores. This, in turn, opens up doors to better financial opportunities, such as lower interest rates on loans and access to higher credit limits.
- Financial discipline and learning: Secured credit cards offer an excellent platform for learning responsible financial habits. You must manage your spending within the available credit limit and ensure prompt payments. This experience cultivates discipline and budgeting skills that are invaluable for long-term financial well-being.
- A path to unsecured credit: In many cases, secured credit cards serve as stepping stones to obtaining unsecured credit cards. Consistent responsible behaviour with a secured card might qualify for unsecured cards with better terms and rewards.
How to build credit with a secured credit card
To build credit with a secured credit card, make regular on-time payments and keep your credit utilization low. Over time, this responsible usage is reported to credit bureaus, helping to improve your credit score effectively.
How to apply for a secured credit card
To apply for a secured credit card, provide a security deposit as collateral, usually equivalent to your credit limit. Submit your ID and income proof online or at the bank, and once approved, start using the card to build credit.
When should one opt for a secured credit card?
- Limited or no credit history: Secured credit cards are particularly beneficial for those with limited or no credit history. They provide a starting point for building credit from scratch, as they are often asier to qualify for than unsecured cards.
- Credit rebuilding: For those who have experienced credit setbacks, such as late payments, defaults, or bankruptcies, secured credit cards offer an opportunity to begin credit rebuilding. By maintaining positive credit behaviour over time, you can demonstrate your improved financial responsibility to potential lenders.
- Responsible budgeting practice: Even for someone with good credit scores, secured credit cards can be a tool for practising responsible budgeting. They offer a controlled environment for managing expenses and payments, helping users avoid overspending and accruing unnecessary debt.
How to get a secured credit card
- Research and comparison: Researching various secured credit card options available from different financial institutions. Compare factors such as annual fees, interest rates, credit reporting policies, and any rewards or benefits offered.
- Choose the right card: Select a secured credit card that aligns with your financial goals and needs. Ensure that the card issuer reports to major credit bureaus, as this is crucial for building or rebuilding credit.
- Application process: Complete the application process, which typically requires personal information, identification documents, and a security deposit. The deposit amount usually determines the credit limit, so choose an amount that is manageable for you.
- Responsible usage: Once approved, use the secured credit card responsibly. Make small, regular purchases and ensure timely payments of the full balance. This demonstrates financial responsibility and contributes positively to your credit history.
By choosing the right secured credit card, using it responsibly, and demonstrating consistent positive behaviour, you can lay a solid foundation for a secure financial future. Whether you are starting your credit journey or seeking a fresh start, a secured credit card could be the key to unlocking your financial potential. Once you are comfortable with the usage of a secured credit card, you can then opt for the Bajaj Finserv co-branded credit cards and enjoy exclusive discounts, cashback, accumulate reward points, travel benefits like fuel surcharge waiver and airport lounge access, along with entertainment rewards like 1+1 movie tickets and huge discounts of OTT subscriptions.
