Getting a Credit Card on a Fixed Deposit? Here’s your guide

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Your safety net on getting a credit card.

A credit card against a fixed deposit, is one of the initial methods to help you get acquainted to the world of cards. Among the many factors that banks consider, your income and credit history fall at the foremost of this decision. These steps are taken primarily to avoid a situation where the cardholder is unable to repay the loaned amount. To tackle this insecurity, the idea of issuing a credit card against a fixed deposit came into existence.

How does this concept work?

The fundamental concept of issuing such a credit card is to enable a situation where a borrower can own a credit card after depositing funds into a fixed deposit. This FD acts as a collateral to the bank in case the borrower defaults. This is a chance for a borrower with a damaged credit history and/or a low income to increase his credit score while freeing himself from the debt trap of a card.

For credit cards against fixed deposits, the credit limit is a certain percentage (80-85% as observed for top banks in India) of the total amount in your fixed deposit. So, if you have an FD where you have deposited INR 20,000, then your credit limit would be INR 16,000.

Who is this card for?

Although a secured credit card can be possessed by anyone, it is best recommended for the following:

  • Individuals with low-income or with no income proof
  • Individuals with a no or low credit score
  • Retired individuals
  • Students
  • Homemakers

What are the benefits?

There are plenty of benefits associated with a secured credit card when compared to an unsecured credit card. Some of these include:

  • Cards are sanctioned regardless of your credit history
  • Very limited documentation is required
  • No income tax return documents or proof is needed by the bank to issue the credit card
  • No income eligibility requirements when applying for the card
  • Offers redemption to those with a damaged credit history to rebuild their credit score
  • Comparatively lower interest rates

But are there any downsides to this?

Though this may sound too good to be true, there are a couple of points that you must be aware of when applying for a credit card against a fixed deposit.

  • In case of emergencies where you have to arrange for money, you cannot withdraw funds from your FD account
  • If you cannot repay the loaned amount, the funds will be deducted from your FD account
  • If you fail to repay your dues, it will further affect your credit score

What are the top credit cards available in the market?

ICICI Coral Credit Card

What are the Benefits?

  • Earn 2 reward points on every INR 100 spent on all purchases except on fuel, utilities and insurance
  • Buy one get one free on movie tickets throughout the week at www.bookmyshow.com
  • Get 1 reward point on every INR 100 spent in utilities and insurance categories
  • Minimum 15% savings on dining at over 2500 restaurants
  • Complimentary airport lounge access

SBI Simply Advantage Card

What are the Benefits?

  • Up to 100% cash withdrawal limit
  • Add-on cards for your children or siblings above the age of 18, spouse and parents
  • Quick payment of utility bills using Auto Pay, Register & Pay and Fast Pay
  • Can transfer balance on EMI

Axis Insta Easy Card

What are the Benefits?

  • Cash withdrawals up to 100% of the credit limit
  • 1% fuel surcharge waiver on all fuel transactions in India
  • Interest-free period up to 50 days

Kotak Aqua Gold Credit Card

What are the Benefits?

  • Easy and instant balance transfer
  • Insurance cover of INR 50,000 against fraudulent usage
  • Get 4 free PVR tickets or cashback of INR 750 on spends of more than INR 1,50,000 in a year

CBI Aspire Visa Card

What are the Benefits?

  • Global acceptance
  • Get 1 reward point for every INR 100 spent
  • Interest-free period up to 55 days
  • Insurance cover of INR 1,00,000 for accidental death

What happens in the event of a default in payment?

To understand the repercussions involved when you are unable to repay the bank, let’s look at an example:

Assume that you have an FD of INR 20,000. If you spend INR 10,000 and are unable to repay the bank, the bank will take INR 10,000 with interest from your FD. Now, you will be left with the remainder amount in your FD and a lower credit limit. In addition to this, your credit score will also take a hit. This will also create repercussions in your credit history and you might find it difficult to apply for loans or other credit cards in the future.

It is always advisable to clear debt as and when possible and bring your score up to enjoy many other benefits in the future too.

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