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Rebuild your CIBIL Credit Rating: Secured Credit Card

Friday, August 10, 2012 by Rajiv Raj

cb103n3Aditya Nayar, an IT engineer in Bangalore, lost his job in 2008 during the global recession. He tried his hardest but was unable to get one for the next two years. He had a personal loan and a couple of credit cards to pay off. By the end of 2009, he ran out of savings and defaulted on his loan and one credit card. He settled both amounts and cancelled both his credit cards as well. He managed to get another job with a software solutions firm in early 2011. In January 2012, he applied for another credit card. His application was rejected because of his poor credit history. The credit card company informed him that it would be very difficult for him to get any loan because of his poor record. Nayar went into depression because he had plans to get married and set up a home.

A poor CIBIL credit record has dashed many dreams. But there are ways of rebuilding your credit record and history. One option is that of a secured credit card. A secured credit card is a card that is issued by a bank against a cash deposit, usually a fixed deposit.

ICICI Bank, HDFC Bank and Axis Bank are three big banks that issue secured credit cards in India. This is how a secured credit card works: You make a deposit into the bank, say Rs. 50,000. Depending on the bank, the credit limit on your card could be anywhere from 50% to 100% of your deposit. The risk for the bank is minimised because if you default the bank can take it out of the deposit. The reasons include late payment fees, minimum amount due or if you default. Basically a secure credit card is a debit card by a different name.

Regular payment of dues improves your credit score and over a period of 18-24 months, regular usage and payment of credit card dues goes a long way in boosting your credit record. And since, you can only spend as much money as you have in the deposit, there is no way you can incur more debt.

While taking a secured credit card keep the following points in mind:

  1. Make sure the bank reports all your details to CIBIL. After all the whole point of a secured credit card is to improve your credit history with CIBIL and to increase your CIBIL credit score.
  2. Some banks charge fees like processing fees, annual fees etc. Please check with all the banks on who can give you the best deal.
  3. Try and get a deal where your fixed deposit can earn interest. This way, your money does not lie idle.  


MadanRajiv Raj

Rajiv is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India’s first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

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