Credit cards are a great way to access instant funds and pay for all you need without hassle. Traditionally, only people with a good credit score could get credit cards, but today, these cards are also available to those with a poor or no score. Known as credit cards on FD or FD credit cards, you can get such a card against a fixed deposit.
Your FD investment acts as collateral, which offsets the issuer’s risk of offering you credit without knowing or relying on your creditworthiness. Thus, getting a credit card on FD is a great way to build a good credit score and improve your chances of getting easy approval for credit in the future.
However, before you apply, understand its benefits and disadvantages to make an informed decision.
Benefits of a Secured Credit Card
Here are some key advantages of getting a credit card on FD:
Improve or Build Credit Score
The lack of a good credit score doesn’t just affect access to credit cards but also to most forms of credit. And the way to improve your score is to showcase good credit behaviour. Since a secured credit card is a type of credit facility, how you use it affects your score.
When you use your secured card responsibly and pay its bills on time, your score will gradually improve. To ensure this, keep your credit utilisation ratio under 30% and set reminders for timely payments.
Keep Assets Secure
When you need funds for the short term and don’t have the credit score to get a loan, you can get a credit card on FD. This is a better option because you can avoid liquidating your savings or FD investment and get the necessary funds.
Since the card’s limit depends on the FD value, you can pledge a deposit that can give a sufficient limit to meet your needs. However, ensure you don’t max out your card and pay your dues on time.
Get Payouts with FD Interest Rates
When you get a secured credit card, the FD you pledge as security continues to earn interest as per the terms. As such, you don’t just get access to instant funds but also secure your financial growth with lucrative FD rates.
However, make sure that you carefully read through the terms and conditions of your secured credit card and deposit. This will enable you to make an informed decision and use your card wisely.
Drawbacks of a Secured Credit Card
Here are some key disadvantages of getting a credit card on FD:
Risk of Losing Deposit
A credit card on FD works in a manner similar to other secured types of credit. If you fail to repay, the lender has the right to liquidate your pledged security to recover the outstanding amount.
So, if you don’t pay your bill, the issuer can break your FD. As such, you don’t just lose the deposit but also any future interest earnings with it. It is in your best interest to try to ensure that you can pay the bill on time, regardless of circumstances.
Lack of Choices
Issuers usually offer a credit card on FD to those who don’t meet credit score requirements. Given this, the choices you get may be fewer as compared to regular, unsecured credit cards, where you can choose from various options.
Additionally, while secured cards come with multiple benefits and rewards, they do not give you as many savings and options as regular cards. That said, secured cards are more inclusive and meant to help you build your score. Once you do that, you can get a regular card.
Restriction on Withdrawal
In fixed deposits that aren’t pledged as security, you can make premature withdrawals as per the terms and policy of the issuer. However, when you get a credit card on FD, this facility is no longer available.
You cannot access the funds until maturity or the time when your FD isn’t linked to your card. As such, you need to manage your finances in a way that a lack of liquidity doesn’t affect your credit card payments or leave you short of funds.
Armed with this information, you can choose the right credit card and build your credit score. Choose the right issuer to ensure that you get maximum returns on your FD and benefits on your card. One Card is a leading issuer offering both unsecured and secured credit cards with a variety of perks.
By getting a One Credit Card on FD, you can enjoy 5X reward points on your top spending categories, no joining or annual fees and easy digital management through the powerful One Credit Card App. What’s more, you can book an FD from ₹5,000 to ₹1 Lakh. Apply now to gain from high FD interest rates!
