Get a Credit Card Despite a Poor CIBIL Score: The Collateral Trick

Credit cards, essentially a form of loan with an interest-free grace period, have become indispensable in today’s financial world. While acquiring a credit card is usually straightforward, a poor CIBIL score can lead banks to hesitate or even deny your application due to the perceived risk of loan default.

If you’re facing this issue, don’t worry—there’s a practical solution: applying for a Secured Credit Card. This option ensures that your application is swiftly approved, even with a low CIBIL score. Here’s a detailed look at secured credit cards and their advantages.

What is a Secured Credit Card?

A secured credit card is issued against a collateral deposit, typically a fixed deposit (FD) with the bank. The credit limit is usually up to 85% of the FD amount. The card remains usable as long as the FD is active. If the cardholder fails to pay their credit card bill on time, the bank can recover the outstanding balance by liquidating the FD. This makes secured credit cards an excellent choice for individuals whose standard credit card applications have been declined.

Benefits of a Secured Credit Card

1. Improves Credit Score: Timely payments on a secured credit card help improve your credit score, establishing a positive credit history and enhancing your future loan or credit card eligibility.
2. Limit Based on FD: The card’s limit depends on the FD amount, allowing for flexibility; a higher FD means a higher credit limit.
3. Lower Interest Rates: Interest rates for secured credit cards are generally lower than those for standard credit cards, and the annual maintenance fees are also more affordable.
4. Easy Approval: Approval for a secured credit card is simpler because it’s backed by a collateral deposit. Your credit score or income proof doesn’t influence the application process.
5. Credit Limit Flexibility: With a credit card linked to an FD, users can increase their credit limit at no extra cost, all while earning interest on their FD.

Secured credit cards provide a reliable pathway for those with poor credit scores to regain financial credibility and enjoy the benefits of credit card ownership.