A credit card is a financial instrument that is accessible to many, contrary to the common belief that people can only use it with a good credit history. You may often wonder if there are many conditions attached to getting a credit card. However, some credit cards do not require such terms.
Secured credit card
A secured credit card is issued against collateral, usually a cash deposit or a fixed deposit, similar to a loan. Banks and NBFCs issue secured credit cards against fixed deposits. Secured credit cards work differently than regular credit cards. The credit limit for a secured credit card is determined based on the credit limit.
Normally, the credit limit for a secured credit card is approximately 75-85% of the total fixed deposit amount. Your credit limit therefore corresponds to your fixed deposit amount. The higher the deposit, the higher the credit limit and vice versa.
Unsecured credit card
An unsecured credit card requires no collateral or deposits. Banks and NBFCs issue this credit card based on your credit score, credit report and other factors that determine your creditworthiness. The credit limit for an unsecured credit card is determined by credit score, income, credit utilization ratio, existing debts, etc.
What should you go for?
According to Abhishek Saxena, MD and co-founder of Omni card“The move to secure cards provides businesses with a secure and controlled way to manage spend while ensuring policy compliance. Unlike unsecured cards, secured cards come with pre-loaded spending limits, allowing for better budget management and eliminating the risk of overspending.”
“When funds are pre-loaded, ensuring better spend management becomes easier than ever. This also helps reduce exposure to fraud and unauthorized transactions. These fundamental built-in security features make secure cards an ideal choice for organizations to help optimize financial controls and mitigate risk,” said Saxena.
In either case, however, you must pay your credit card charges on time to avoid interest and late fees, which will in turn affect your credit score. Additionally, you should examine your financial health before choosing either one.
In conclusion, the reasons for choosing a secured credit card or an unsecured credit card may vary from person to person. People with a good credit history can choose an unsecured credit card, while people with a bad credit history can choose a secured credit card.
(Note: Using a credit card comes with its own risks)
