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What is a Secured Credit Card and, How It Works?

What is a Secured Credit Card and, How It Works?

The convenience and flexibility you can get from credit card usage are unimaginably noteworthy. Credit cards have become a valuable payment method, from helping you overcome crucial financial scenarios to making payments on time.

A cardholder can get excellent cashback options or reward points, depending on the type of credit card. Among different types of credit cards, a secured card has become a convenient choice for people with low income or bad credit.

This insightful guide walks you through all the details. So, what are secured credit cards? Let’s discover everything about secured cards in this guide.

An Introduction to Secured Credit Cards

Wondering what are the two reasons someone might want to open secured credit cards in India? Firstly, they benefit individuals with a bad credit history or no CIBIL reports.

That’s one reason why it is easily accessible to borrowers. Secondly, it’s a secure choice. Cardholders can avail of the card against a certain amount of a fixed deposit. So, it reduces risks for issuers, too. Compared to unsecured cards that don’t include any collateral, it’s a better option.

The only thing a borrower needs to consider is paying the bills on time. Once you fail to pay the bills in a timely manner, your credit card issuer takes the deposited money.

Here’s How a Secured Credit Card Works

Compared to unsecured credit cards, these cards are issued against fixed deposits. The secured one requires a cash deposit that works as collateral.

This particular deposit amount is equal to the limit a borrower receives. This is the most notable difference between unsecured and secured credit cards. In unsecured ones, you don’t require any deposit as collateral.

Someone who is unable to get regular credit cards can choose secured ones. For instance, this card is ideal if you have a lower income or a bad credit history. The bank with which you deposit the amount liquidates the amount to recover the debts if there are any defaults on payment terms.

A customer who holds this credit card needs to deposit a fixed amount until the cardholder uses the card. The bank or financial institute offers a certain amount of capital against the deposit. It depends from one financial institute or bank to another. The card works similarly to the other credit cards. A cardholder can also earn interest.

Why Is Owning a Secured Credit Card Beneficial?

Here’s a list of benefits that make a secured credit card an excellent choice for salaried millennials:

Approval is Easy

A secured credit card in India is more straightforward to apply when compared to an unsecured one. It does not matter whether you have a low income or a bad CIBIL history.

It only requires a certain amount of cash deposit as collateral that your card issuer will have. The issuer takes the risk by using the card, as they have your cash deposit.

Credit Access

Suppose you have bad credit or no credit. In such cases, applying for unsecured credit cards might be pretty challenging. You may use this card to improve your credit history and inform lenders that you are a reliable borrower.

Great for Building Credit

Wondering how much a secured credit card will raise your score? Well, it entirely depends on your punctuality, considering your timely payments.

However, it is noteworthy to state that secured credit cards help you build credit. You can make timely payments and keep your credit usage low. This healthy financial habit shows your responsibility to lenders.

Extremely Secure

Did you know that a secured credit card can offer additional benefits, considering financial security? Suppose you misplace the card. You can immediately report this to your issuer.

All-Purpose Card

You can use this card just like other credit cards. That means you can make your utility, EMI, and different types of payments.

However, not every credit card would offer all these benefits. Before applying for a secured credit card, you must research and compare different options.

You may also read this: Smart Ways to Use Credit Card for Maximum Benefits

5 Steps to Follow While Applying for a Secured Credit Card

Are you a beginner in the world of credit cards? A secured credit card is the best way to start your journey. Here’s how you can use it by following the below-offered steps:

1st Step: Find Out the Best Options

Based on your CIBIL report or high income, you might get approval for the unsecured credit card. However, starting with a secured card is always better if you are new or have a low credit score. So, shop around and find an option.

It’s essential to compare secured cards to find the most suitable fit. The more cards you take into consideration, the better your chances are of getting the best offers.

2nd Step: Assess Your Eligibility

Note that an applicant needs to be 18 years of age or above. The applicant needs to be an Indian who applies for the secured card. If you meet these criteria, you are eligible for the application.

3rd Step: Compare the Features

After you select a few secured credit cards in India, now is the right time to consider comparing the features of each. While comparing the features, don’t forget to consider these aspects:

You may also read this: Disadvantages of Multiple Credit Cards

Security Deposit

Most secured cards require a minimum deposit amount. The amount you deposit is your credit limit. However, a few cards offer lower deposits, depending on the borrower’s creditworthiness.


You can return your deposit within 6 –12 months with timely payments. After the deposit gets refunded, the card becomes your unsecured credit card. Other issuers might hold on to that deposit until the cardholder closes the account. That might negatively impact the credit.


Most secured cards come with rewards on daily purchases. However, for those with lower CIBIL scores, the card might not offer cashback, miles, or credit card reward points.

Charges Included

Most issuers offer secured cards without a yearly charge. But you will find some credit card issuers offering these cards with an annual fee. So, you must determine this parameter before choosing the right one.

Annual Percentage Rates (or ARP)

A few secured credit cards in India may charge a higher ARP. Someone who plans to pay the balance on time every month won’t face a problem with this card type. However, if you plan to keep a certain balance, you should always avoid cards with higher interest.

4th Step: Submitting the Application

Soon after selecting the card, it’s time to visit the official website of the credit card issuer. Learn the essential details required for applying. In general, you would be required to fill out the form by including details like:

  • Name
  • DOB
  • Taxpayer ID number
  • Citizen status
  • Phone number
  • Employment status or pay slips
  • Rental or other housing expenses (utility charges)
  • Citizenship

Some websites need your education level and bank account details, too. You might need to complete the KYC by uploading your Aadhar card.

5th Step: Pay Your Deposit

After you pay your security deposit, you can get the card. Some issuers need the deposit through a bank transfer. Others may allow you to pay via cheque or net banking.

Tips to Build Good Credits with Secured Credit Cards

The credit bureaus in India get details on delayed repayments or defaults of credit cards outstanding from the issuer.

Such bureaus mention details in your credit report. These remarks can reduce your credit score. So, as a beginner who wants to use secured credit cards in India for the first time, here’s how you can build good credit.

Of course, making timely repayments impacts your credit positively. But you must follow these points to improve your credits.

  • Always repay the due amount by the due date.
  • You can convert the dues into monthly EMIs in case you are not able to repay the amount by the due date.
  • Always refrain from taking too many secured credit cards within a short timespan.
  • The credit limit is usually 70% to 80% of your total deposit (so you can top up the limit once you reach 75% of the limit).

It’s imperative to monitor your credit score at regular intervals of time. If you see any error in the report, you can always report such errors to the credit bureau.

Wrapping up

So, this post has evaluated how to use a secured card. One should remember that a secured card builds credit and improves your credit score. Since the credit card needs an amount as a deposit, it is important to conduct your survey on various secured credit cards. The insightful guide has also outlined how timely repayment can improve your credit.

So, secured credit cards in India offer multiple benefits, whether it’s because of low income, excessive debt, or bad credit scores. As a prospective cardholder, your journey toward searching for the right credit begins from now onwards.

Now that you understand what a secured credit card is and how it works, you can choose and compare various cards. You must select a card that fits your financial requirements and budget.

You may also read this: Build Credit Score Without a Credit Card

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