Why a Credit Card Against FD is a Smart Choice for First-Time Cardholders

One of the most interesting combinations of this feeling is applying for a credit card for the first time. Because all of us have heard two kinds of stories: One where people enjoy discounts and cashbacks daily and the other where credit card dues restrict their essential purchases. Well, a smart way around it for first-time credit card holders is getting a credit card against FD.

In this article, we'll learn how a credit card against an FD works, explore the best practices, and discover how to choose the right bank for it

What is a Credit Card Against FD?

Simply put, it's a secured credit card that's backed by your fixed deposit. Unlike the usual credit cards, which often need a solid credit history and a higher income, these FD-backed cards are much easier because your deposit secures them.

Your credit limit is usually a percentage of your FD amount-think anywhere from 75% to 90%.

It's a win-win: you get the credit card experience without the usual hurdles.

What to Keep in Mind as a First-Time Credit Card User

As a first-time credit card user, it's essential to be mindful of certain things to make the most of your credit card against FD:

1. Understand the Fees: Be aware of any annual fees, processing fees, or other charges associated with your FD-backed credit card.
2. Credit Limit Management: The credit limit is tied to your FD amount. It's crucial to manage your spending within this limit to avoid penalties.
3. Repayment Discipline: Timely repayment is crucial, not just to avoid interest charges but also to build a positive credit history.
4. Know Your Interest Rates: While FD-backed credit cards generally offer lower interest rates than unsecured cards, is important for financial planning.

7 Benefits of a Credit Card Against FD

1. Easier Approval Process: Since your FD secures the card, banks are more willing to issue it, making it ideal for those with no or low credit history.
2. Credit Building Opportunities: Using a credit card against FD responsibly allows you to build or improve your credit score, paving the way for better financial products in the future.
3. Lower Interest Rates: These cards typically come with lower interest rates compared to unsecured credit cards, making it a cost-effective option for beginners.
4. Minimal Documentation: The documentation process is straightforward as the bank already holds your FD details, simplifying the application process.
5. Security Against Default: In case of a default, the bank can liquidate the FD to recover dues, minimising the financial risk involved.

How to Choose the Right Bank for a Credit Card Against FD

In addition to your eligibility and line of credit offered by the bank, consider the following while selecting a bank for your FD-backed credit card:

• Compare Interest Rates: Look for banks offering competitive interest rates on both the FD and the credit card.
• Review Terms and Conditions: Understand the fine print, including fees, charges, and penalties associated with the card.
• Check Customer Service: Opt for banks known for good customer service to ensure smooth handling of any issues.

A credit card against FD is an excellent stepping stone for first-time cardholders to gain financial freedom and also build financial health. It offers an easy approval process, a secure way to build credit, and access to attractive benefits.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.