Here’s how you can use secured credit cards to build your credit history
What exactly is a secured credit card? Secured credit cards operate exactly like regular credit cards, in terms of earning rewards, discounts and cashback on spends. The customer gets 15 to 20 days to make the payment for the spends of the previous 30 days. The difference lies wherein secured credit cards necessarily require a deposit or guarantee or a similar collateral.
This distinctive feature sets these cards apart and offers an opportunity to establish creditworthiness and demonstrate responsible financial behaviour to individuals that lacked access so far. How do secured cards work? Secured credit cards operate on the principle of collateral, which can take different forms. One well-known collateral option is a fixed deposit.
The amount deposited typically determines the credit limit, providing cardholders with a clear spending threshold. This encourages consumers to manage their expenses within their means and develop healthy financial habits. In variant quantities, gold is available in most Indian households and can serve as an ideal collateral to secure credit cards.
This approach not only benefits individuals who possess gold but also helps the financial sector. Presently, NBFCs like Rupeek have come up with gold collateralized credit cards where they offer up to 75% of the gold value as the credit limit. Furthermore, secured credit cards can extend their reach by leveraging property as collateral.
Small businesses with unpredictable cash flows, such as shopkeepers and young professionals, can benefit from this. Credit cards with a modest limit issued on the back of small ticket property would offer a road ahead for the less privileged, akin to an overdraft. Currently, there are financial products that offer
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