Last Updated:
Customers can use FD-backed credit card for routine purchases and build a fresh repayment record by paying the bills on time.
Unlike a regular credit card, which is generally issued after assessing an applicant’s income, repayment history and creditworthiness, an FD-backed credit card is secured by a deposit kept with the bank.
A poor credit score can make it difficult to get a new credit card or loan. However, an FD-backed credit card could offer a way to rebuild your credit history. Here’s how it works, how much money you need to deposit and what borrowers should keep in mind.
A low CIBIL score can make borrowing an expensive and frustrating exercise. Banks may reject credit card applications, lenders may hesitate to offer personal loans, and even when credit is available, borrowers could face less favourable terms.
But what if you could get a credit card even with a poor credit history? One option is a credit card secured against a fixed deposit (FD). Unlike a regular credit card, which is generally issued after assessing an applicant’s income, repayment history and creditworthiness, an FD-backed credit card is secured by a deposit kept with the bank.
For instance, a person who is unable to get a regular credit card because of a low CIBIL score could open a fixed deposit of Rs 10,000, subject to the bank’s minimum deposit requirement, and apply for a secured credit card against it.
The bank uses the FD as collateral and provides a credit limit based on its lending policy. The customer can then use the card for routine purchases and build a fresh repayment record by paying the bills on time.
This can be a useful option for people looking to rebuild their credit profiles, although it does not guarantee an immediate improvement in their CIBIL score.
What Is An FD-Backed Credit Card?
An FD-backed credit card is a secured credit card issued against a fixed deposit maintained with a bank. The deposit acts as collateral, reducing the lender’s risk if the cardholder fails to repay outstanding dues.
Since the bank has the security of the FD, its eligibility requirements may be less stringent than those for a conventional unsecured credit card.
Such cards can be useful for people with a low credit score, individuals with no credit history, young professionals, students and those who do not have regular income documentation.
The fixed deposit generally continues to earn interest at the applicable rate even after it is pledged as security. However, the bank places a lien on the deposit, which means the customer cannot freely withdraw or close it while the credit card remains secured against it.
How Does A Credit Card Against FD Work? An Example
Suppose a borrower has a CIBIL score of 550 and has been rejected by banks for regular credit cards. The borrower approaches a bank offering secured credit cards and opens a fixed deposit of Rs 10,000. Depending on the bank’s policy, the credit limit could be equal to the FD amount or a percentage of it.
For example:
| Particulars | Amount |
|---|---|
| Fixed Deposit | Rs 10,000 |
| Illustrative Credit Limit | Rs 9,000 |
| Monthly Spending | Rs 2,000 |
| Monthly Bill Payment | Rs 2,000 |
The customer uses the card for small purchases and pays the entire outstanding bill before the due date every month.
The bank reports the account and repayment behaviour to credit information companies, including TransUnion CIBIL. Over time, consistent repayments can help establish a positive credit history.
The important point is that the customer must treat the secured card like a regular credit card and avoid spending beyond their repayment capacity.
How Much FD Is Required To Get A Credit Card?
The minimum fixed deposit required varies from bank to bank and card to card. Some issuers allow customers to obtain secured credit cards with deposits of just Rs 5,000, while others require a higher amount.
For example:
– IDFC FIRST Bank: Its FIRST EA₹N credit card is available against a minimum FD of Rs 5,000. The bank offers a credit limit equivalent to 100% of the FD value, subject to its eligibility and internal policies.
– HDFC Bank: Its credit card against FD requires a minimum deposit of Rs 15,000. The bank offers a credit limit of up to 90% of the FD amount.
Therefore, a person with Rs 10,000 in savings may be able to access an FD-backed credit card from an eligible issuer, but the amount required and the credit limit will depend on the particular product.
Borrowers should also check joining fees, annual charges, interest rates, late payment charges and other terms before applying.
How Can An FD-Backed Credit Card Improve Your CIBIL Score?
A credit score reflects a borrower’s credit history and repayment behaviour. TransUnion CIBIL considers several factors while calculating an individual’s score, including payment history, credit utilisation, length of credit history and credit enquiries.
An FD-backed credit card can help improve a credit profile by creating an opportunity to demonstrate responsible borrowing.
Here are the key ways it can help:
1. Builds A Positive Repayment History
Payment history is an important factor affecting a CIBIL score. When a customer pays the credit card bill in full and on time every month, the bank reports this repayment behaviour to credit bureaus. Over time, this can add positive repayment information to the borrower’s credit profile.
2. Helps Maintain A Low Credit Utilisation Ratio
Credit utilisation refers to the proportion of the available credit limit that a borrower uses. For example, if the credit limit is Rs 10,000 and the outstanding balance is Rs 2,000, the utilisation ratio is 20%. Borrowers should ideally keep their utilisation below 30%. Lower utilisation can help maintain a healthier credit profile.
3. Establishes A Credit History
People with no previous borrowing experience may have limited credit histories. An FD-backed credit card gives them an opportunity to establish a track record of managing credit responsibly. Maintaining the account and making timely payments over an extended period can help strengthen their credit profile.
4. Provides An Opportunity To Rebuild Credit
People who have experienced repayment delays or defaults in the past can use a secured credit card to demonstrate improved financial discipline. However, it is important to understand that fresh positive repayments do not automatically erase previous defaults or overdue accounts.
What Should You Keep In Mind While Using An FD-Backed Credit Card?
Getting the card is only the first step. How you use it will determine whether it helps or hurts your credit profile. Here are some important precautions:
Pay the entire bill on time: Do not restrict yourself to paying the minimum amount due. Pay the total amount outstanding by the due date to avoid interest and late payment charges.
Keep credit utilisation low: Try to use less than 30% of your available credit limit. Avoid exhausting the entire limit.
Avoid unnecessary spending: Use the card for small, planned expenses that you can comfortably repay.
Do not apply for multiple cards: Frequent applications can lead to multiple hard enquiries on your credit report, which may affect your score.
Check your credit report: Review your CIBIL report periodically to ensure that your account and repayment information are being reported correctly.
Clear existing dues: If you have unpaid loans or credit card bills, work towards resolving them. A new secured card will not automatically settle your previous obligations.
Will An FD-Backed Credit Card Remove Previous Defaults From Your CIBIL Report?
No. This is one of the most important things borrowers should understand. An FD-backed credit card does not erase previous loan defaults, missed payments, settlements or write-offs from a credit report. It simply provides an opportunity to establish a fresh record of responsible credit usage.
For example, if a borrower defaulted on a personal loan two years ago, taking a secured credit card and paying its bills regularly will not automatically remove that old default.
However, consistent repayments on the new card can gradually strengthen the overall credit profile.
Borrowers should also check their credit reports for incorrect entries and raise disputes with the relevant credit bureau or lender if they find inaccurate information.
How Long Does It Take To Improve A Bad CIBIL Score?
There is no fixed timeline for improving a poor CIBIL score. The improvement depends on several factors, including the borrower’s existing credit history, the number and severity of defaults, outstanding dues, credit utilisation and repayment behaviour after obtaining the secured card.
A person with a limited credit history may see changes differently from someone with multiple past defaults or settled accounts.
Therefore, borrowers should focus on maintaining consistent repayment discipline rather than expecting their CIBIL score to jump within a few weeks or months.
Banks and other financial institutions generally report credit information to credit bureaus periodically. The Reserve Bank of India has prescribed reporting at fortnightly intervals under its credit information reporting framework, so updates may not reflect immediately after every payment.
Quick Answers
Ask News18An FD-backed credit card lets you build a positive repayment history by making routine purchases and paying your bills in full and on time every month. The bank reports this responsible behavior to credit bureaus like TransUnion CIBIL, helping to establish or rebuild your credit profile over time.
Ask News18About the Author
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalis…Read More
November 04, 2026, 11:50 AM IST
Read More
Source link
[ad_3]
