20 Aug 2017 15:19 IST

A credit card against fixed deposits

For some, secured credit cards can be an option to build credit history

For a salaried person, obtaining a credit card is not a big deal as all card providers are willing to give one to them. But it might be difficult for an individual whose income is not regular or for one who has no credit history. For such people, there is a way out in secured credit cards, that is, credit cards issued against your fixed deposits. Certain banks like ICICI Bank (Coral and Instant Platinum Card), Axis Bank (Insta Easy Card), Kotak Mahindra Bank (Aqua Gold Card), State Bank of India (Advantage Plus Card), Bank of Baroda (Assured Credit Card) and Central Bank of India (Aspire Credit Card) offer credit cards of this variant.

Eligibility conditions

The condition you need to fulfil is to have a fixed deposit or open one with the bank from which you wish to obtain your credit card. No additional documentation is required as the bank can fetch all your details from your deposit account.

Most of the banks like ICICI Bank, and Axis Bank require you to have a minimum deposit amount of ₹20,000. This is slightly higher at ₹25,000 in case of Kotak Mahindra Bank and Bank of Baroda. There is no cap on the maximum deposit amount except for Axis Bank that restricts it to ₹25 lakh. The minimum tenor also varies. For instance, it is 180 days for getting the ICICI Bank’s Coral or Instant Platinum card. While most banks do not specify the type of deposit, Central Bank of India requires you to open its Cent Aspire Term Deposit for getting the Aspire credit card against the deposit.

Also, there are instances where these cards will not be issued. For instance, Axis Bank does not give cards to minors against deposits. Flexi deposits and tax-saver deposits will also not fetch you a credit card with Axis Bank. ICICI Bank does not give cards to third parties, partnership firms, etc or if a lien is already marked against the deposits.

Credit limit and recovery

Most of the banks offer up to 80 per cent of your deposit amount as credit limit. That is, if you have a deposit for ₹1 lakh, the credit limit on the card can be up to ₹80,000. ICICI Bank, however, offers up to 85 per cent of the deposit as credit limit. Some banks also restrict the overall credit limit. For instance, in the Kotak Mahindra Bank’s Aqua Gold card, you can get a maximum credit limit of ₹12 lakh even though you may have a deposit much higher than that. Central Bank of India caps it to ₹10 lakh on its Aspire credit card.

Other things like the credit period, fees, interest rate and other charges remain predominantly around the same levels as applicable to a normal credit card. The credit period ranges from 30 to 60 days. Late payment fee and interest rates are applicable if you miss your payments like other cards. The only difference and a major advantage for the banks here is that in case of a default, the amount is recovered from your deposit. Also, in some cases like ICICI Bank, if the outstanding amount reaches 95 per cent of the deposit, it will be recovered from the deposit amount immediately.

The validity of the card runs until you hold the deposit with the bank. In general, in these cases, banks tend to place your deposit under auto-renewal mode. But what if you want to close your deposit? Manav Jeet, MD & CEO of Rubique, an online marketplace catering to the finance needs of individuals & SMEs says, “If one wants to continue using the card even after the maturity of the deposit, a request has to be sent to the financial institution to remove the lien and convert it into an unsecured credit card.” The request is then processed by the banks for approval. But there is a possibility of the credit limit being revised in this process, based on your credit score and other parameters. Ranjit Punja, CEO & Co-founder , CreditMantri, says, “If you had made regular payment of your credit card bills during the deposit tenure, your credit score would have been built by the end of the deposit. Thus, you can be in a position to apply for a normal credit card.”

For whom?

According to experts, getting a credit card against fixed deposit is a deal for three categories of people. One, for those who are new to the credit market and have zero credit history. Obtaining a credit card would help them build a credit score. Two, for an individual with a poor credit score whose loan application for a financial need may face the risk of being rejected. Such individuals can obtain a secured credit card to meet their financial needs if they have ongoing FDs with these banks.

And the third category for which this card suits best is those with irregular incomes. Vikas Kumar, Co-Founder, Loantap, says: “Freelancers who have disparity in their income or people in small businesses with irregular incomes who are in need of a credit card can just open a fixed deposit and get a card.” However, in all these cases, one has to have some money to open a fixed deposit which gets locked in. If rates on deposits are at rock-bottom, as they are now, it may not be the optimum investment.

(The article first appeared in The Hindu BusinessLine.)