FD credit card are an excellent option to consider if you’re new to credit or have a low credit score. Since these cards are backed by security, you enjoy quick and easy approvals and can build or rebuild your credit history.
Unlike regular unsecured credit cards, these unique financial tools offer a fresh perspective on credit. This accessibility can be a game-changer for various individuals, from young adults venturing into independence to those on the path to financial recovery.
Here’s an informative guide on using this card that can help you build a positive credit history.
How an FD Credit Card Works
A secured credit card requires a deposit as collateral to secure your line of credit. Your limit is usually equal to your deposit. In these types of cards, the risk for the issuer is less since they can leverage your FD to recover the dues in case you default.
The issuer reports your payments to the credit bureaus, helping you establish a positive payment history. After making on-time payments for 6-12 months, you may become eligible for an unsecured card and get your deposit back.
Tips for Using Your FD-backed Credit Card for Credit Improvement
This card can set the stage for long-term economic success by providing a solid foundation for a robust credit profile. Here are some tips for using your FD-backed card for credit improvement:
- Check the Fees and Charges Beforehand
There are various fees and charges that issuers levy on credit cards. Being aware of these financial liabilities can help you prepare better and avoid non-repayments, which can further reduce your credit score.
One important charge you need to know about is annual fees. Certain card issuers charge an annual or monthly fee to keep the account active. In addition to that, you must also check the interest rates. Secured credit cards typically have higher interest rates.
You can avoid this fee by paying off your balance in full each month. Also, pay attention to other charges, such as application fees, processing fees, and foreign transaction fees, by reading the fine print carefully.
- Pay Your Bills on Time
Secured card issuers report payment activity to credit bureaus like other credit card companies. These payments will include both on-time payments that appear positively on your credit report and negative information such as late payments and high balances.
Due to this, your credit score can either improve or deteriorate as it is based on your payment history. Furthermore, a late payment remains on your credit report for seven years.
- Pay More Than the Minimum Due Amount
If you have a credit card, you must try to pay the entire outstanding bill amount or more than the minimum due. When you pay only the minimum, most of your payment goes toward interest rather than reducing the principal balance.
This can also lead to a cycle of debt as the remaining balance continues to accrue interest. Paying more than the minimum helps you avoid this and helps enhance your credit score.
- Avoid Exceeding Your Credit Utilisation Ratio (CUR)
When you apply for new credit, you must maintain a healthy credit utilisation ratio. It is the credit you use in relation to the overall credit limit you have. You want to avoid giving the impression that you constantly rely on loans. So, you need to try and keep your credit utilisation ratio around 30%.
Also, you should only apply for new credit if necessary and if you can repay it. Accumulating too much debt and not being able to pay it off can hurt your credit score.
- Choose EMI to Pay Bills
Paying loan EMIs on time or before the due date helps you maintain a good credit score. Missing or delaying a single loan instalment negatively impacts your credit history and score. You can always set reminders for payments or bills on your credit card app.
If you cannot complete the payment by the due date, you should at least clear the minimum amount due. In this case, the issuer does not report the non-payment of total dues to the bureau.
- Convert the Card into an Unsecured Card
Some secured credit card issuers may automatically approve you for an unsecured card if you’ve made on-time payments for several months. Others will require a formal application. Using your secured card may also help you improve your credit score, making you eligible for unsecured credit cards from other issuers.
In this case, you can choose whether to keep your secured card open or close it and receive your security deposit back. Before proceeding for the next step, consider your finances and the impact of closing a secured card.
Under the right circumstances, you can significantly improve your credit score by consistently paying your bills on time and keeping track of them. The One Credit Card is a standout option for a secured credit card. The One Credit Card benefits you in establishing your credit history and offers a 5X reward program on purchases, making it a wise financial choice.
Through the One Credit Card app, you can demonstrate your creditworthiness in a secure and structured manner. This credit card online app has essential features, giving you the confidence to achieve financial independence. Use it to manage your transactions and swipe with confidence every time efficiently.