A secured credit card is a great alternative when you are trying to start over and build your credit score and wish to avail yourself of the benefits of a credit card. It is provided against collateral, like a fixed deposit, to lower the risk for the issuers.
You can continue with the card if your fixed deposit is open at the bank. In most cases, the bank offers a cap of approximately 85% against the FD. The amount you deposit is your credit limit. An adequate security deposit depends on your requirements, goals, and savings.
What Is a Good Security Deposit?
A secured credit card has many costs involved in their use. The deposit you add to the bank compensates the credit card issuer for the risk they take in lending money via the credit card.
A good security deposit depends on your resources and how you intend to use your credit card. It is essential to consider the following points while deciding the amount to deposit.
Your Current Financial Status
You need to analyse how much cash you need in the savings so that the rest can be kept as a deposit for the credit card. A small deposit can help you achieve your goals without risking big money if you only apply for a secured card for building credit.
When and How Much Security Will Be Refunded
Some issuers offer an upgrade to an unsecured card after you make a few payments on time. You must understand the fees, additional charges and process of getting you security deposit back.
You can either close the fixed deposit to close the credit card account or apply for an unsecured credit card based on the issuer’s approval.
When Should You Consider a Smaller Bank Deposit
You must consider your financial situation. An emergency fund in the bank is also essential to cover unexpected expenses during medical emergencies. Apart from this priority, you should deposit some funds in the bank to get a credit card. A small amount from your savings is sufficient for getting a secured credit card.
Then, consider your requirements and goals for using a secured credit card. Are you taking the card to repair a weak credit history or build a credit history? Next, consider your goals for your new secured credit card. In either case, you don’t need much funds deposited in the bank.
You can make a larger deposit if you want to use your secured card to make more significant purchases every month. With a smaller deposit, you’ll have a lower credit limit, which can make it impossible to make larger purchases.
When to Consider a Larger Bank Deposit
You can consider a larger deposit in the bank if you have an emergency fund in your bank and then use your credit card to cover your utility bills and daily expenses. For instance, if you have regular fuel purchases, consider getting a petrol credit card that offers up to 1% waiver on fuel surcharges.
Remember, if you have a financial cushion, choosing a high credit limit will help you make big purchases without a hassle.
Do Not Cross Your Budget
Although there are benefits of a high security deposit and getting a high credit limit on your credit card, it is essential to beware of not overdoing it. You must avoid crossing your budget and draining the funds to get a high credit limit.
When you keep your credit utilisation at check, a large deposit helps you use your credit card to your maximum potential and build a good credit score for the future. Experts suggest keeping the credit utilisation rate below 30% for a healthy credit score.
As you can see, a secured credit card is the best option if you are still financially growing or not earning. The required security deposit, on which issuers can risk issuing credit cards and providing a credit limit, can be decided by you! However, your goal must be to improve your credit score by adopting a disciplined strategy and applying for a conventional credit card with a higher credit limit.
Stressed that your current credit score may not be enough to get an instant credit card? Whatever the reason, don’t worry because the One Credit Card has got you covered. The One Credit Card App helps you create an instant FD, which will act as a security deposit to get an FD-backed credit card.
The app also lets you track your transactions and dues and manage finances confidently. You can enjoy 5X rewards on your top two spend categories and avail great offers on dining, travel, entertainment, etc. Apply now; the One Credit Card is yours to enjoy at your fingertips.
