Getting a credit card is often associated with having a regular income, a good credit score and a satisfactory credit history. But what happens when someone wants a credit card and doesn’t have much borrowing history to show?
This is where a secured credit card can help.
You can use it much like a regular credit card, but the two differ in eligibility and security. A secured card is linked to a fixed deposit, which provides security to the card issuer. A regular credit card, on the other hand, is issued without collateral and relies more heavily on the applicant’s credit profile and financial assessment.
The difference may seem small at first, but it can matter when deciding which type of card suits your financial situation.
What is a secured credit card?
A secured credit card is a credit card issued against a fixed deposit. Instead of relying entirely on an applicant’s credit history or income profile, the card is backed by an existing FD.
The fixed deposit acts as security for the card issuer. Depending on the card terms, the credit limit may be set as a percentage of the deposit amount. For instance, a card could offer a credit limit of up to 90% of the FD value.
The exact limit depends on the card’s terms and the deposit amount.
Importantly, the FD continues to earn interest according to its applicable terms. However, it remains linked to the credit card as security, so you may not withdraw or close it while the card arrangement and outstanding obligations remain active.
This makes the structure different from simply using an FD to save money. The deposit is doing double duty by continuing to earn interest while also supporting a credit facility.
How does a regular credit card work?
A regular credit card is an unsecured form of credit. You do not need to place a fixed deposit as collateral to receive the card.
Instead, the card issuer evaluates factors such as income, credit score, existing financial commitments, repayment history and other eligibility requirements. Based on this assessment, the issuer decides whether to approve the card and what credit limit may be appropriate.
The credit limit on a regular card is therefore not directly tied to a deposit the applicant holds.
For someone with a well-established credit history and stable financial profile, a regular credit card can provide access to credit without requiring a security deposit.
What makes a secured card different from a regular card?
The biggest difference is the security behind the card.
With a regular credit card, the issuer extends credit without asking for a fixed deposit as collateral. With an FD based credit card, the fixed deposit secures the credit offered.
This distinction can affect how easy it is to obtain the card.
|
Feature
|
| Regular Credit Card | ||
| Security | Backed by a fixed deposit | Usually unsecured | ||
| Eligibility | Can be suitable for people with limited credit history | Generally depends more on credit and financial profile | ||
| Credit limit | Usually linked to the FD amount | Decided based on the issuer’s assessment | ||
| Fixed deposit | Required | Not required | ||
| Interest on FD | The deposit can continue to earn interest | Not applicable | ||
| Monthly bill | Must be paid separately | Must be paid separately | ||
| Credit history | Can help establish responsible credit behaviour | Can also contribute to credit history |
The exact features, fees, limits and eligibility requirements can vary between card issuers.
Why can an FD based credit card be useful for new borrowers?
Building a credit history takes time, but getting the first credit card can sometimes be difficult without an established credit profile.
A person who has never borrowed money may have little or no credit history. Similarly, someone who does not meet the conventional income requirements for an unsecured card may find it difficult to get approved.
An FD based credit card can provide another route.
Because the fixed deposit provides security, the card issuer does not have to rely entirely on the applicant’s borrowing history when assessing the card. This can make the option relevant for first-time credit users and people looking to establish a credit record.
You can then use the card for everyday purchases, as long as transactions stay within the available credit limit.
Does a secured card work like a regular credit card?
For everyday spending, there may not be much difference.
A secured card can be used for eligible online and offline transactions, depending on the card’s features and settings. The cardholder receives a bill and is expected to repay the outstanding amount within the specified payment period.
This distinction is important to understand. The fixed deposit does not mean that every purchase is automatically deducted from the FD.
If you spend ₹10,000 using the card, you still need to pay the ₹10,000 credit card bill as applicable. The FD remains security for the card rather than functioning as a prepaid balance.
This also means that having an FD-backed card does not remove the need for responsible repayment.
Does the fixed deposit remain intact?
The fixed deposit remains a deposit and can earn interest under its terms. However, it is placed under a lien as security for the credit card.
In simple terms, the deposit is earmarked against the card facility.
This means you may not be able to withdraw or prematurely close the FD while it secures the card, and it may come with obligations. The exact conditions depend on the card and deposit terms.
Consider this before choosing a secured card because the money in the FD may not be immediately available for other financial needs.
At the same time, the arrangement lets the deposit keep earning interest instead of sitting unused.
Can the FD be used to pay the credit card bill?
This is one of the most important things to understand about a secured card.
The fixed deposit and the credit card bill are separate.
The fact that an FD backs your card does not mean you can avoid paying the monthly bill because the issuer already holds your deposit. The cardholder remains responsible for making the required payments.
The FD acts as security for the card. It is not a replacement for regular repayments.
This distinction matters, especially for someone using a secured card to build a credit history. Paying bills on time demonstrates responsible credit behaviour, whereas repeatedly missing payments can have negative consequences.
Can a secured card help build a credit history?
Yes, responsible use of a secured card can help establish credit history when the card issuer reports the account and repayment behaviour to credit bureaus.
This can make the card particularly relevant for someone new to credit.
For example, a first-time cardholder can use the card for manageable expenses and repay the bills on time. Over time, this creates a record of how the person handles borrowed money.
However, simply having the card is not enough.
Spending beyond your ability to repay, missing due dates or carrying large unpaid balances can work against the purpose of having the card. The FD provides security for the issuer, but it does not protect the cardholder from the consequences of poor credit management.
What happens if you need a higher credit limit?
A secured card’s credit limit is linked to the value of the fixed deposit.
This means that increasing the amount kept in an eligible FD may allow a higher credit limit, depending on the issuer’s terms. Some card arrangements may also allow you to link additional fixed deposits to the card for this purpose.
This can offer flexibility to someone whose spending requirements increase over time.
However, a higher limit should not automatically translate into higher spending. Credit availability and affordability are different.
A larger limit gives you access to more credit. It doesn’t mean you need to use it all.
Who should consider a secured card?
A secured credit card may be worth considering for someone new to borrowing who wants to build a credit history.
It may also help people who have difficulty qualifying for an unsecured credit card because of limited credit history or other eligibility factors.
For someone with a strong credit profile who qualifies comfortably for regular credit cards, a secured card may be more convenient because it doesn’t require a fixed deposit as collateral.
The decision therefore depends on the individual’s financial circumstances, not on one card being universally better than the other.
What should you check before getting a secured card?
Before choosing a secured card, look beyond the fact that it is issued against an FD.
Start by checking the minimum deposit required and how the credit limit is calculated. Also understand the annual fees, joining charges, interest rates, late payment charges, and other applicable costs.
The rules surrounding the fixed deposit deserve particular attention. Check whether you can withdraw the FD before maturity, what happens when you want to close the card, and when the lien on the deposit is released.
You should also look at the card’s everyday features. These can include online transactions, domestic and international usage, rewards, offers and other benefits.
Most importantly, understand the repayment terms. A secured card is still a credit card, and you still need to pay the monthly bill on time.
The key difference is the security behind the card
A regular credit card and a secured card may feel almost identical when you use them to make a purchase. Both provide a credit limit, generate monthly bills and require repayment.
The difference lies in what supports that credit facility.
A regular card is issued based on the applicant’s financial and credit profile without requiring collateral. A secured card is backed by a fixed deposit, which can make it an option for people who may not have an established credit history or may not meet the usual eligibility requirements for an unsecured card.
An FD based credit card can therefore be useful for someone who wants access to credit while working towards building responsible credit habits.
Remember that the FD does not replace repayment. It serves as security for the card, while the cardholder remains responsible for paying the bills.
Used thoughtfully, a secured card can provide a practical starting point for managing credit, establishing a repayment record and becoming more comfortable with responsible borrowing.