Credit Cards are a financial tool that lets you purchase products and make payments on credit. You can then repay the utilised credit by the due date of bill payments. Like Debit Cards, Credit Cards also let you make payments and purchases online and offline. However, these cards differ from each other.
The principal difference between a Credit Card and a Debit Card is that with a Debit Card, the money for the transactions gets deducted from your Bank Account. Conversely, when you utilise a Credit Card for transactions, the money is deducted from the credit limit of the card. Credit Cards are an unsecured category of cards where you need not pledge any collateral. However, there are also Secured Credit Cards. Let us understand them in detail.
About Secured Credit Cards
Secured Credit Cards are offered against Fixed Deposits. They function a lot like normal Credit Cards. However, the critical difference is that a Secured Credit Card is provided against a collateral like an FD. This lowers the risk level for Credit Card issuers. Secured Credit Cards can benefit people with poor or no credit history. It is also the easiest way to boost your credit score while taking advantage of the perks of a Credit Card.
How do they work?
A Secured Credit Card is provided against an FD you have with their bank. When holding this card, you need to continue the FD with the bank as long as you use your card. These cards are secured since the bank with which you have made the FD has the right to liquidate the FD amount to recover your debts if you default on the payment terms.
Benefits of Secured Credit Cards
A Secured Credit Card can offer multiple benefits. These include the following:
- Beneficial if you have no credit history
People who do not have a credit history can utilise this Credit Card to start building a credit history. This makes it easier for them to get Loans approved in the future.
- Boosts credit limit and earns interest
When you select a Secured Credit Card, it increases your credit limit. At the same time, you can keep earning interest on your FD.
- Gain experience
By using this card, you can gain experience in getting a Credit Card.
- Work towards an unsecured card
You can utilise a Secured Credit Card to work towards qualifying for a Unsecured Credit Card.
Conclusion
Secured Credit Cards offer a different perspective on credit. They can be helpful for different people, including newly independent young adults. Such a Credit Cand also lets you rebuild your credit and provides other benefits. So, research, compare your options, and select a Secured Credit Card that best fits your budget.
