Credit cards, particularly secured cards, are becoming increasingly popular among consumers because they not only allow you to earn rewards on everyday purchases but also help you build your credit profile. Secured credit cards are similar to unsecured credit cards. The major difference is the deposit the consumer has to make with the bank. The more premier the card is, the better the benefits would be.
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Unsecured Credit Cards
The unsecured credit cards are not backed by FD or any other collateral. The credit limit of the card is determined on the basis of various factors such as the applicant’s income, credit score and existing debt. Opting for an unsecured credit card can be a good choice if you already have a good credit score and meet the eligibility requirements such as minimum monthly salary, occupation profile, employer profile, etc set by the credit card issuer. Consumers can enjoy the benefits of a wide variety of rewards and cashback. Furthermore, one can gain access to the best travel and entertainment rewards and earn rewards on every transaction.
One having strong repayment history and eligible income can get the benefit of a higher credit limit, which can help improve the credit utilization ratio.
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Secured Credit Cards
Banks issue secured credit cards against the FDs pledged as collateral. The concept of secured credit cards is on the rise as it not only helps to build your credit score but also the pledged FD continues to earn interest. The credit limits of secured cards are determined on the basis of your fixed deposit value, which usually ranges from 80%-100% of the FD’s value. These cards are best suited for consumers who cannot avail of unsecured credit cards due to their poor or no credit score, inadequate income, job profile or location constraints.
For instance, Step UP Secured Credit Card co-branded with SBM Bank India Ltd, allows cardholders to earn FD interest from SBM (India) FDs. The credit limit is 90% of your FD amount which can be topped up anytime till Rs. 95,000. The annual fees is NIL. The joining fees for FDs below Rs 5,000 are Rs. 250 + 18% GST, while there are no joining fees for FDs above Rs 5,000.
The Step UP Credit card is issued across all locations in India without any credit score check, income/employment check or physical paperwork. Those consumers unable to avail of unsecured credit cards due to their poor/NIL credit score and/or due to jobs/employment profile or location constraints can avail Step UP Credit Card, earn reward points on their card spends and avail of attractive Rupay card offers while simultaneously building or improving their credit score through regular repayments of their credit card bill.
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Benefits of availing secured credit cards
- You can earn FD interest on secured credit cards
- Helps in building a credit history for people who are new to credit
- Helps to improve credit score for those with a poor score
- Increases your liquidity and thus prevents you from prematurely closing your FDs
Secured vs Unsecured Credit Card: Which Credit Card Is Right for You
Choosing between an unsecured or secured credit card completely depends on your purpose, spending tendency and your overall credit profile. A secured card can be the best option for people looking to build or rebuild their credit score whereas unsecured credit cards are great for people who are looking for a greater variety of rewards and perks. However, cardholders should note that any default or delay in repayment will reduce their credit score on both unsecured as well as secured credit cards.
Highlight:
| Particulars | Secured Credit Card | Unsecured Credit Card |
| Minimum credit score required | No credit score is required | 750 and above have higher chances of availing an unsecured credit card |
| Location | Usually available across the service area of all the branches of the issuing bank. However, Step Up Credit Card can be availed in all locations across India. | Usually offered at select locations of the issuing bank |
| Income Check | No income check required | Cards are issued only if applicant’s income falls under eligibility criteria |
| Occupation Check | No occupation check required | Occupation check is done as part of the credit assessment process |
| Employer’s Profile Check | Employer’s profile check is not required | Employer’s profile check is done as part of the credit assessment process |
| Collateral |
Applicant has to open an FD account, pledged as collateral |
Not collateral required |
| Credit Limit | Usually 80%-100% of FD | Depends on the applicant’s credit profile |
