Introduction
For many Indian borrowers, the term “secured credit card” is misunderstood. Some assume it is a prepaid card, others think it is meant only for people rejected by banks, and many are unsure whether it even helps improve a CIBIL score.
From a banking perspective, these assumptions are incorrect.
A secured credit card is a legitimate credit product, designed to manage risk while allowing borrowers to build or rebuild credit discipline. Indian banks actively use secured credit cards to onboard first-time users and to support borrowers with low or recovering CIBIL scores.
This article explains how secured credit cards work in India, who should consider them, how banks decide limits and eligibility, and how these cards can help improve long-term credit health.
What Is a Secured Credit Card?
A secured credit card is a credit card issued against a fixed deposit (FD) placed with the issuing bank. The FD acts as security, allowing the bank to control credit risk while still offering revolving credit to the borrower.
Unlike prepaid cards:
- A secured credit card involves actual credit
- Transactions and repayments are reported to credit bureaus
- It directly impacts the borrower’s CIBIL score
To understand how this reporting works, it is useful to first read how a CIBIL score works in Indian banks and NBFCs.
How Secured Credit Cards Work in India
Step-by-step banking process:
- The borrower opens a fixed deposit with the bank
- The bank issues a credit card against that FD
- The credit limit is linked to the FD amount
- Monthly usage and repayments are reported to credit bureaus
The card functions like a normal credit card:
- Monthly billing cycle
- Minimum due and total due
- Interest charged if full payment is not made
However, because the bank holds an FD as security, the risk exposure is limited.
This structure aligns closely with how banks assess credit risk internally.
Secured vs Unsecured Credit Cards: Key Differences
Banks use secured cards as a controlled entry point into credit.
| Aspect | Secured Credit Card | Unsecured Credit Card |
|---|---|---|
| Collateral | Fixed Deposit required | No collateral |
| Approval basis | FD + basic checks | Credit score & income |
| Credit limit | Linked to FD | Based on profile |
| Risk to bank | Low | High |
| Suitability | Low CIBIL / New users | Established borrowers |
Who Should Consider a Secured Credit Card?
From a banker’s view, secured credit cards are ideal for:
- Borrowers with low CIBIL scores (600–650)
- Individuals who have faced recent loan or card rejections
- First-time credit users with no credit history
- Borrowers rebuilding credit after past stress
Different credit products require different score levels, which are explained in minimum CIBIL score required for different loans in India. and check your cibil score by clicking here.
Credit Limit on Secured Credit Cards
How banks decide the limit:
- Usually 80%–100% of FD amount
- Depends on bank policy and product type
Example:
If you create an FD of ₹50,000, the credit limit may range from ₹40,000 to ₹50,000.
Important points:
- Higher FD does not mean reckless usage is encouraged
- Banks still monitor utilisation and repayment discipline
Interest Rates and Charges: Clearing the Confusion
A common myth is that secured credit cards have no interest because they are backed by FD.
Banking reality:
- Interest rates are similar to unsecured cards
- Interest applies if full dues are not paid
- FD is not used unless there is a default
The FD is risk protection, not a payment substitute.
Do Secured Credit Cards Improve CIBIL Score?
Yes — if used correctly.
Banks look for:
- Timely monthly payments
- Low credit utilisation
- Consistent behaviour over time
When these conditions are met, secured cards support the process explained in how to improve CIBIL score from 600 to 750 in India.
Typical improvement timeline:
- 3 months → early positive signals
- 6 months → visible improvement
- 9–12 months → strong recovery possible
Common Mistakes Borrowers Make with Secured Credit Cards
Many borrowers fail to benefit due to misuse.
Common mistakes include:
- Using more than 50–60% of the limit regularly
- Paying only the minimum due
- Treating the card like a prepaid card
- Closing the card too early
These mistakes create stress signals similar to those discussed in how much EMI is safe for your salary.
When and How Banks Upgrade Secured Cards
Secured credit cards are not meant to be permanent.
Banks typically review accounts based on:
- Repayment history
- Credit utilisation
- Account stability
If behaviour remains clean:
- Banks may offer limit enhancement
- Some banks convert secured cards to unsecured cards
- FD may be released after upgrade
This upgrade logic follows the same principles explained in how banks decide loan and credit card eligibility in India.
Myths vs Facts About Secured Credit Cards
Myth: Secured cards are for rejected borrowers only
Fact: Banks use them as a structured credit-building tool
Myth: FD is locked forever
Fact: FD is released once the card is closed or upgraded
Myth: Secured cards don’t help credit score
Fact: They improve score when used responsibly
Are Secured Credit Cards Better Than NBFC or Fintech Cards?
In many cases, yes.
Compared to high-fee or aggressive fintech products, secured cards:
- Are bank-issued
- Follow regulated practices
- Provide clearer upgrade paths
product designedThis distinction is similar to the risk difference explained in bank vs NBFC loans: approval logic, interest rates and risk.
Conclusion
A secured credit card is not a compromise product. From a banking perspective, it is a risk-controlled entry into formal credit, designed to help borrowers demonstrate discipline safely.
For individuals with low CIBIL scores or limited credit history, secured credit cards offer:
- Easier approval
- Controlled credit exposure
- A structured path to better credit products
Used responsibly, a secured credit card can become the foundation of long-term financial credibility.