Secured credit cards in demand as they strengthen user’s credit history
An unsecured credit card often comes with prohibitive terms
image for illustrative purpose
By using these cards responsibly, users can showcase their creditworthiness to lenders and credit bureaus. Timely payments and careful spending habits demonstrate reliability and can lead to an increase in credit limit, which further maintains one's creditworthiness over time
In the realm of personal finance and credit management, the significance of secured credit cards in boosting credit scores and mastering credit profile management cannot be overstated. As individuals increasingly recognize the importance of a robust credit history, secured credit cards have become a pivotal tool for credit enhancement.
The adoption of secured credit cards has shown a remarkable uptrend, with individuals leveraging this financial instrument to build and strengthen their credit profiles. These cards, backed by a security deposit, provide a structured approach for those looking to establish or rebuild their credit history.
A recent RBI report unveiled that despite India nearing 100 million credit cards in circulation, a substantial amount of these remain concentrated in the hands of affluent individuals (approx. less than 40 million hold a credit card). People are not able to get credit cards either due to lack of credit score, income proof or location constraints. This stark disparity underscores the critical need for financial inclusion.
Talking to Bizz Buzz, Rakshit Agarwal, co-founder, Rupicard, says, “Secured credit cards act as a stepping stone to financial inclusion and empowerment. Unlike traditional unsecured cards, they require a refundable security deposit, typically in the form of an FD.”
Rupicard is specifically designed to help the next 200 million customers who establish creditworthiness through responsible financial practices, he said.
Secured credit cards offer a unique opportunity for individuals to enhance their credit scores and effectively manage their credit profiles. By using these cards responsibly, users can showcase their creditworthiness to lenders and credit bureaus.
Timely payments and careful spending habits demonstrate reliability and can lead to an increase in credit limit, which further maintains one's creditworthiness over time. Additionally, using secured credit cards provides valuable insights into personal spending patterns, enabling users to make informed financial decisions and cultivate healthy credit habits.
Gaurav Chopra, founder and CEO of IndiaLends, says, “Secured credit cards play an essential role in personal finance and credit management, particularly for individuals starting their journey of credit rebuilding. These cards are backed by FD, so they lower the issuer's risk. The presence of collateral provides a level of assurance to credit card companies, making them more willing to extend credit to individuals who may pose higher risks due to limited credit histories or previous financial setbacks. Individuals who may have limited or damaged credit histories can get a secured credit card as it will offer a structured means to demonstrate financial responsibility.”
The importance of secured credit cards becomes particularly evident for those who are starting their credit journey or rebuilding after financial setbacks. Acquiring an unsecured credit card in such situations may be challenging, and if available, it often comes with prohibitive terms.
Secured credit cards bridge this gap by offering a more attainable entry point into the world of credit. By utilising secured credit cards responsibly, individuals can actively demonstrate their creditworthiness. Timely payments and careful spending habits contribute to establishing a positive credit history, he said.
Using secured credit cards is especially advantageous for individuals who want to establish or rebuild their credit history.
Suppose you are starting your credit journey and don't have a substantial credit background or are recovering from past financial setbacks. In such situations, getting an unsecured card may be out of reach or they come with riders. Since these secured cards are backed by FD, the issuer's risk is comparatively less, and hence acquiring these cards is more accessible. Even if the cardholder defaults, the secured funds can be utilised to cover any outstanding balances. This reduced risk enhances the likelihood of approval, acquiring secured credit cards a more feasible option for those already going through the complexities of credit rebuilding.
Moreover, the structured nature of secured credit cards provides users with a tangible framework for responsible credit management. The credit limit on secured cards is typically tied to the security deposit amount, preventing users from overextending themselves financially.
This structured approach encourages disciplined spending and fosters financial responsibility, which are crucial elements in the credit-building process. By adhering to the prescribed spending limits and making timely payments, individuals showcase their commitment to financial responsibility and set the stage for a positive credit history.
