What is Credit Card Against FD - How to Apply & its Limit

A credit card is not just a convenience today; it’s more of a need. Credit cards help you to build and maintain your credit score. However, not everyone qualifies for a regular credit card due to a low CIBIL score or insufficient credit history. A credit card against FD helps rebuild your credit score. 

Let’s explore the concept of FD credit cards, their benefits, eligibility criteria, how to apply for them, and who should consider these credit cards. 

Quick Overview: Credit Card Against Fixed Deposit

• A credit card against FD is a secured card where your fixed deposit acts as collateral.
• It is ideal for individuals with low, poor, or no credit history.
• The credit limit usually ranges between 70% and 90% of the FD amount.
• Your fixed deposit continues to earn interest while being pledged.
• Approval is faster and requirements are simpler compared to unsecured cards.
• A credit card on FD helps build or improve your credit score with responsible usage.

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What is Credit Card against Fixed Deposit?

An FD credit card, also known as an FD based credit card, is a facility offered by banks that allows individuals to get a credit card even with a low or limited credit score. In this case, your fixed deposit is kept as collateral and supports repayment. The credit limit usually ranges between 70% and 90% of the FD value and varies by bank policy.

One key benefit of an FD based credit card is that the fixed deposit continues to earn interest. This means you can spend using the credit card for regular expenses while your FD simultaneously generates returns.

Benefits of Credit Card against FD

• Easy Approval Process- Since the credit card is secured against a fixed deposit, the approval process is generally quicker and less stringent than traditional credit cards. As long as the applicant meets the minimum fixed deposit requirements, getting a credit card becomes much easier.
• Builds Credit History - For individuals with no or poor credit history, a credit card against a fixed deposit provides an excellent opportunity to establish or improve their credit score. Responsible usage and timely repayments can significantly enhance their creditworthiness.
• FD Continues to Earn Interest - The fixed deposit, used as collateral, still earns interest throughout the credit card tenure. Therefore, the individual continues to benefit from their savings while using the credit card for various transactions.
• Lower Charges: Credit cards against fixed deposits often have lower fees, interest rates, and annual charges than regular credit cards, making them a cost-effective option for consumers.
• Suitable for Financial Discipline - Since the credit limit is linked to the fixed deposit amount, it promotes financial discipline, as the cardholder must spend within the available credit limit.
• Credit Limit: The credit limit is not established by the bank. It is generally between 80% to 90% of the Fixed Deposit amount.

Read about: Best Credit Card Against Fixed Deposit

Eligibility Criteria

Eligibility for a credit card against a fixed deposit is generally straightforward and accessible to many individuals. The primary requirements typically include:

• Age: The applicant should be within the age group specified by the credit card issuer (usually 18 to 65 years).
• Fixed Deposit: The individual must hold a fixed deposit with the bank or financial institution offering the credit card.
• Minimum Fixed Deposit Amount: You must make a minimum fixed deposit amount to be eligible for the credit card, which may vary from bank to bank.
• KYC Documents: The applicant must provide the necessary Know Your Customer (KYC) documents, such as identity proof, address proof, and passport-sized photographs.

Documents Required for Credit Card Against Fixed Deposit 

The bank will evaluate the same documents you presented when you opened your FD account. They may verify the proof's authenticity, particularly the present address, ID submitted and FD details against which you are applying for a credit card.

What are the Steps to Apply for a Credit Card Against FD?

Applying for an FD credit card is a relatively simple process. Here are the steps to follow:

Step 1 - Choose the Bank:
Start by selecting a reputable bank that offers this type of credit card. Look for favourable terms, interest rates, and credit limits.

Step 2 - Open a Fixed Deposit:
Once you have selected the bank, open an FD account with the required minimum or your desired amount.

Step 3 - Credit Card Application:
Complete the application form on the bank's website or at the branch. Attach the necessary documents according to the bank's requirements.

Step 4 - Fixed Deposit Pledge:
The bank will put a lien on the fixed deposit amount, which is collateral for the credit card.

Step 5 - Credit Card Issuance:
Once the bank verifies the application and documents, they will issue the credit card against a fixed deposit with the assigned credit limit.

Who Should Apply for an FD Credit Card?

FD credit card applies to various individuals, including:

• First-time Credit Card Users: Those with no prior credit history and who are finding it challenging to get a regular credit card can benefit from this secured credit card to start building their credit.
• Individuals with Low Credit Scores: Individuals with a less-than-desirable credit score can also use this opportunity to improve their creditworthiness over time.
• Financial Discipline Seekers: This credit card option ensures financial discipline if you want to avoid overspending and limit your credit usage to a fixed deposit amount.
• Risk-Averse Consumers: An FD credit card offers peace of mind for risk-averse individuals who do not want to risk overspending.

Regular Credit Cards vs FD Credit Cards

Understanding the difference between regular credit cards and a credit card on FD helps users choose the right option.

How Does a Credit Card Against Fixed Deposit Work?

When you open a fixed deposit (FD) and apply for a credit card on FD, no extra income evidence is necessary. The FD serves as collateral for the credit card, and in the event of payment default, the bank or issuer can liquidate the deposit. However, you will be alerted via many communication channels before any such action is performed. Maintaining a secured credit card in good standing for an extended length of time (usually 1-2 years) may cause the bank to delink your FD. Good standing entails making timely payments, staying within budget, and using the account consistently.

Also Read: Best Credit Cards for Airport Lounge Access

Conclusion

A credit card against FD is a valuable financial tool that opens the doors to credit for individuals who might otherwise struggle to obtain traditional credit cards. By utilising a fixed deposit as collateral, applicants can enjoy the convenience of a credit card while simultaneously building or rebuilding their credit history. An FD credit card is a stepping stone towards a stronger financial future and infuses valuable financial discipline.

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