Boost Your Credit Score with Credit Cards Against Fixed Deposits

Maintaining a healthy credit score is crucial for your financial well-being. A good credit score can help you secure loans, lower interest rates, and gain access to various financial opportunities. However, building or repairing a credit score can be challenging, especially if you have a limited credit history or a low CIBIL score. In such cases, credit cards against fixed deposits (FD) can be a lifeline. In this article, we'll explore how these cards work, and their benefits, and suggest a few banks that offer this product, including IDFC, which is renowned for offering credit cards against FDs with low deposit requirements and attractive interest rates.

Understanding Credit Cards Against Fixed Deposits

Credit cards against fixed deposits, often referred to as secured credit cards, are a type of credit card that's secured by a fixed deposit account. These cards are designed to help individuals with a limited credit history, poor credit scores, or those looking to rebuild their credit. Here's how they work:

Fixed Deposit as Collateral: To get a credit card against a fixed deposit, you must open a fixed deposit account with the bank. The fixed deposit serves as collateral, providing security to the bank, which in turn, reduces the risk associated with lending to individuals with poor credit.

Credit Limit: The credit limit of the card is typically a percentage of the fixed deposit amount. For example, if you have a fixed deposit of ₹50,000, your credit limit might be set at 80-90% of that amount, which means you can spend up to ₹40,000-₹45,000.

Credit Card Usage: You can use this credit card just like any other credit card. Make purchases, pay bills, and repay the credit card balance.

Interest on Fixed Deposit: Your fixed deposit continues to earn interest, which is often competitive and might even outperform standard savings account interest rates. For example, IDFC offers interest rates as high as 7-8% on their fixed deposits, which is a great way to earn while you build your credit.

Building Credit: Timely payments of your credit card bills are reported to credit bureaus. This positive credit history can significantly improve your CIBIL score over time.

Benefits of Credit Cards Against Fixed Deposits

Accessible for All: Secured credit cards are accessible to almost everyone, regardless of their credit history, making them an ideal choice for those who have struggled to get traditional unsecured credit cards.

Credit Building: Regular use and timely payments on these cards demonstrate responsible financial behavior and help improve your credit score. Over time, you can transition to unsecured credit cards with better terms.

Safety Net: Since the credit limit is typically the amount in your fixed deposit, you cannot overspend, reducing the risk of accumulating debt.

Interest Earnings: You continue to earn interest on your fixed deposit, which can be a great way to grow your savings.

Low Fees: Secured credit cards often come with lower annual fees and interest rates compared to unsecured credit cards.

Best Banks Offering Credit Cards Against Fixed Deposits

IDFC Bank: IDFC Bank is an excellent choice for securing a credit card against an FD. They offer this product with a relatively low fixed deposit requirement, making it accessible to a broader audience. Plus, the competitive interest rates on their fixed deposits make it a win-win situation.

SBI Card: The State Bank of India also offers a secured credit card against FDs. While the fixed deposit requirement might be higher, it's a trusted option with a vast network of ATMs and customer service.

ICICI Bank: ICICI Bank offers secured credit cards with flexible fixed deposit amounts. They also provide various credit card options catering to different needs.

Axis Bank: Axis Bank provides credit cards against fixed deposits, making it easier for individuals to establish or rebuild their credit history.

Conclusion

If you're looking to improve your CIBIL score, credit cards against fixed deposits are a smart and accessible option. Among the best banks offering this product, IDFC Bank stands out with its low fixed deposit requirement and attractive interest rates, providing an opportunity to earn while you build your credit. Remember, responsible credit card usage and timely payments are key to improving your credit score, so make sure to manage your card wisely.