A good credit history is a prerequisite to avail of a credit card. For someone just starting to work or someone with a negative credit score, the inability to get a credit card is often a frustrating experience. But for those who cannot get a credit card, there is an easy solution—invest in a fixed deposit. In this article, we explain how to obtain a credit card on a fixed deposit (FD credit card) and its pros and cons.
What is a credit card against a fixed deposit?
A credit card against fixed deposit is a type of secured credit card that banks offer. Here, the cardholder has to keep a fixed deposit with the bank as collateral. The card’s credit limit is usually a certain percentage of the fixed deposit amount.
Several banks offer this type of credit card to individuals with a poor credit history or new to building a credit score. Since the fixed deposit serves as the collateral, the bank has minimal risk in extending credit. Besides, individuals who maintain a fixed deposit can avail of a credit card against it without needing to prove their creditworthiness.
How does a secured credit card work?
A secured credit card, also known as FD credit card, is a type of credit card with collateral backing. The collateral can be in the form of a fixed deposit, savings account, or any other asset that has value.
The bank offers this type of credit card to individuals with a poor or no credit history. The collateral reduces the risk to the bank, and they can extend credit to individuals who may not otherwise qualify for a regular credit card.
The secured credit card works in the same way as a regular credit card. The cardholder can make purchases up to the credit limit and has to pay back the borrowed amount with interest. If the cardholder defaults on the payment, the bank can utilize the collateral to recover the outstanding amount.
Overall, secured credit cards are a good option for individuals looking to build or improve their credit scores. They offer a lower credit limit and require collateral, making them accessible to a broader range of individuals. However, it’s important to read the terms and conditions carefully before availing of a secured credit card to ensure that it suits your financial needs.
Features of credit cards against fixed deposit
While credit cards against fixed deposits may appear enticing, it’s important to read the terms and conditions carefully to ensure that it suits your financial needs. Here are some of the salient features of FD credit cards.
Affordable FD amount
Credit cards against fixed deposits usually have a lower minimum FD amount requirement than regular credit cards. This makes it easier for individuals with a lower credit score or income to avail of a credit card.
The credit limit of a credit card against a fixed deposit is typically linked to the amount of fixed deposit held with the bank. The credit limit is usually 80-85% of the fixed deposit amount. However, this may vary depending on the financial institution.
Credit cards against fixed deposits have minimal documentation requirements. As the fixed deposit is already with the bank, there is no need for additional documentation to prove creditworthiness.
The minimum tenure for a fixed deposit to avail of a credit card varies from bank to bank. Typically, it ranges from 6 months to 1 year.
Credit cards against fixed deposits usually come with an interest-free period of up to 50 days. This means that if you pay your credit card bill in full within this period, you don’t have to pay any interest on your purchases.
Credit cards against fixed deposits may offer rewards and cashback on purchases made using the card. However, the rewards offered may be lower than regular credit cards. Some banks may also offer additional benefits such as discounts on loan processing fees, free insurance coverage, and other perks.
Interest on fixed deposit
The fixed deposit held as collateral for the credit card continues to earn interest at the prevailing rate. However, this interest may be lower than the interest rate on regular fixed deposits, as banks may offer a lower rate for fixed deposits held as collateral.
Getting an FD credit card by opening a fixed deposit with a bank sounds like an interesting proposition to those with a negative credit history or new to building a credit score. Here, the bank does not conduct a credit check. So, you are more likely to get a credit card even with a negative credit history. Besides, you can gradually improve your credit score by using credit cards responsibly and making timely payments.
However, it’s crucial to determine the interest offered on the bank’s fixed deposit and the interest rate charged on credit card transactions. Furthermore, reading the terms and conditions carefully and understanding the costs involved before opening a fixed deposit and applying for a credit card is important.
What is the role of credit rating in investment decision making?
Credit rating guides investment choices by assessing risk. High ratings suggest reliability, boosting confidence for investors like you in selecting opportunities for business growth.
What are the roles of credit rating?
Credit ratings help in assessing the creditworthiness of individuals and companies. They guide lending decisions, determine interest rates, and influence investment choices by indicating financial reliability and risk levels.
What is the role of credit rating in India?
In India, credit ratings play a crucial role in determining the creditworthiness of businesses and individuals. They assist banks and financial institutions in making lending decisions, set interest rates, and enable investors to assess risk before investing. Additionally, they contribute to transparent financial markets and informed borrowing.
What is the main objective of credit rating?
The primary objective of credit rating is to assess and communicate the creditworthiness of borrowers. This helps lenders make informed decisions, borrowers access credit at favorable terms, and investors evaluate risk for making investment choices.