An FD-based credit card, also known as a secured credit card, is a unique financial product gaining popularity among those looking to build or improve their credit score. This type of credit card is issued against a fixed deposit (FD) held by the cardholder in the bank. Let’s explore what an FD-based credit card is, its benefits and features, and how to use it effectively.
What is an FD-Based Credit Card?
An FD-based credit card is a credit card secured by a fixed deposit. The bank holds the FD as collateral and issues a credit card with a limit based on the FD amount, typically 75% to 85% of the deposit. This arrangement provides a secure way for individuals with low credit scores or no credit history to access credit.
Benefits of an FD-Based Credit Card
- Easy Approval: One of the main advantages of an FD-based credit card is the ease of approval. Since the fixed deposit secures the card, banks are more likely to issue these cards even to those with poor credit scores or no credit history.
- Build or Improve Credit Score: Using an FD-based credit card responsibly can help build or improve your credit score. Timely payments and responsible usage are reported to credit bureaus, which can positively impact your credit rating over time.
- Interest Earnings: The fixed deposit linked to the credit card continues to earn interest, providing an additional financial benefit. This means your deposit grows while you enjoy the benefits of a credit card.
- Minimal Documentation: Applying for an FD-based credit card requires minimal documentation, especially if you already have a fixed deposit with the bank. This simplifies the application process and speeds up approval.
- Lower Fees: FD-based credit cards often have lower annual fees than unsecured ones. This makes them a cost-effective option for those looking to manage their finances efficiently.
Features of an FD-Based Credit Card
- Secured Credit Limit: The credit limit on an FD-based credit card is directly linked to the fixed deposit amount. This provides a secure way to manage credit, as the deposit determines the limit.
- Interest-Free Period: These credit cards typically offer an interest-free period on purchases, usually 45 to 50 days. You won’t incur any interest charges if you pay your bill in full within this period.
- Rewards and Benefits: Many FD-based credit cards offer rewards similar to unsecured credit cards. These can include cashback, reward points, and discounts on various purchases. Some cards offer additional benefits, such as complimentary lounge access and fuel surcharge waivers.
- Credit Card Cash Withdrawal: An attractive feature of these cards is the ability to withdraw money from credit cards. While this can be useful in emergencies, it’s important to note that cash withdrawals usually come with higher interest rates and fees than regular purchases.
How to Use an FD-Based Credit Card Effectively?
- Make Timely Payments: Always pay your credit card bills on time to avoid late fees and interest charges. Timely payments also help in building a positive credit history.
- Monitor Your Spending: Track your expenses to ensure you stay within your credit limit and avoid overspending. This will help you maintain control over your finances and avoid debt.
- Utilise Rewards: Take advantage of the rewards and benefits offered by your FD-based credit card. Use the card for everyday purchases to earn cashback, reward points, and other perks.
- Limit Cash Withdrawals: While you can withdraw money from credit cards, it is best to limit this to emergencies due to the higher costs associated with cash advances. Always be aware of the fees and interest rates before cash withdrawals.
Who Should Consider an FD-Based Credit Card?
- Individuals with Low or No Credit Score: An FD-based credit card is ideal for those with a low credit score or no credit history. It provides a way to build or improve credit over time.
- Students and Homemakers: Students and homemakers who may not have a regular income can benefit from an FD-based credit card. The fixed deposit serves as collateral, making it easier to get approved.
- Freelancers and Self-Employed Individuals: Freelancers and self-employed individuals who might find it challenging to qualify for an unsecured credit card can use an FD-based credit card to access credit and build their credit score.
How to Apply for an FD-Based Credit Card?
- Open a Fixed Deposit: The first step is to open a fixed deposit with the bank offering the FD-based credit card. Ensure the deposit amount meets the bank’s minimum requirement for issuing the credit card.
- Submit the Application: Fill out the application form for the FD-based credit card. If you already have an FD with the bank, you may not need to submit additional documents.
- Approval and Issuance: Once the application is submitted, the bank will process it and issue the credit card. The fixed deposit will be lien-marked, meaning it will serve as collateral for the credit card.
Conclusion
An FD-based credit card is a practical and beneficial financial product for individuals looking to build or improve their credit score. It offers the convenience and rewards of a regular credit card while secured by a fixed deposit. By understanding its features and benefits and using it responsibly, you can make the most of an FD-based credit card and enhance your financial stability.
