For many aspiring credit card users, especially those with little or no credit history, applying for a first credit card can feel daunting. Traditional banks often require a solid track record, assessing potential borrowers based on their income, repayment ability, and existing credit history before granting unsecured credit cards. Fortunately, FD-backed secured credit cards present a viable alternative.
Understanding Secured Credit Cards
Secured credit cards allow users to access credit by leveraging a fixed deposit maintained with the issuing bank. This setup provides a pathway for individuals who might struggle to qualify for unsecured cards due to their credit history.
The demand for credit remains significant. According to the Beyond the Swipe report released by TransUnion CIBIL in June 2026, India's outstanding credit card balances saw an impressive increase of 8.3 times over the last decade, rising from ₹0.4 lakh crore to ₹3.1 lakh crore. The number of credit cardholders also surged from 1.4 crore to 5.2 crore, although only about 25% of the credit-active population in India currently holds a credit card.
How FD-Backed Credit Cards Function
With an FD-backed credit card, the issued credit limit is directly tied to the amount of the fixed deposit. Importantly, this deposit stays with the bank as a security measure and continues to earn interest throughout its duration. Users must manage their monthly payments independently, as the fixed deposit is not utilized for everyday spending. In the event of defaults, the bank reserves the right to access the fixed deposit to cover unpaid dues, in accordance with the cardholder agreement.
Key Considerations Before Applying
It’s crucial to compare minimum deposit requirements across various issuers before applying for a secured credit card. Many banks have started to lower their deposit limits. For example, the Paisa+ Secured Credit Card from Paisabazaar and SBM Bank only requires a minimum fixed deposit of ₹2,000.
Santosh Agarwal, CEO of Paisabazaar, mentions that expanding the secured card options addresses the needs of more consumers who may find it tough to secure unsecured credit.
However, selecting a card based merely on a lower deposit isn’t sufficient. Important factors to scrutinize include the specific credit limit linked to the FD, any joining or annual fees, interest rates, late payment penalties, and the benefits or rewards that come with the card.
Additionally, consumers should assess the implications of having a portion of their funds secured in a fixed deposit. While the deposit still accrues interest, it is not readily accessible while being pledged. Consumers need to ensure that this arrangement won’t hinder their ability to cover emergency expenses or meet other financial needs.
Building Credit History with a Secured Card
One significant advantage of using a secured credit card is its potential to help consumers establish a credit history. If used responsibly, and provided the issuer reports payment behavior to credit bureaus, users can develop a reliable credit profile.
Prakash Sikaria, the Founder and CEO of super.money, emphasizes that making timely payments and keeping credit utilization low are critical for building a positive credit record. However, it’s important to note that possessing a fixed deposit does not shield users from the repercussions of missed payments or high debt levels; maintaining good repayment habits is essential.
Transitioning to Unsecured Credit
Secured credit cards can serve as a stepping stone for those looking to transition to unsecured cards. A consistent repayment record and improved credit history can enhance one’s chances of being approved for unsecured credit, though final acceptance still depends on the lender’s criteria.
Some banks may also offer an upgrade option after examining the user’s credit behavior. However, this upgrade is not guaranteed and varies by institution.
For first-time borrowers, FD-backed credit cards provide essential access to formal credit channels and help establish a payment history. Nevertheless, potential applicants should carefully consider the deposit requirements, associated fees, and their ability to manage repayments before moving forward.
Tag: Credit Cards