Responsibly managing and securing credit cards will help increase credit scores and the chances of getting more credit.
A high credit score can help you position yourself where there are many more opportunities to get more credit. It will also help you to have a healthy debate with the lender to get a better deal. An individual with a bad credit score will find it difficult to get loans quickly from trusted lending sources. Even if the individual gets a loan, a hefty interest will be charged on the amount taken as credit. A good credit score will also help you to submit the minimum required collateral as a security to the lender.
The score obtained by using a credit card is a definition of an individual’s ability, in regards to the capability of repayment of an individual. An individual with a bad credit score will have a lesser repaying capacity than an individual with a higher repaying capacity. The credit score may not always be correct in judging an individual’s repaying capacity. However, all the banking instruments and lenders now use this to identify individuals’ capacities.
Credit cards generally issued against collateral like property or a fixed deposit possess a shallow risk to the credit issuer. In case of defaulting on the repayment, the cash lender has the right to take the property or the collateral submitted instead of the money from the lender. In some cases, the credit issuer may lend a loan based on the amount deposited upfront. The issuer may offer 80 % – 90% of the deposited amount as the credit limit. These secured credit cards work in the same manner as unsecured credit cards. The cardholder can carry out online, offline, and EMIs and earn cashback on money spent.
Most secured credit cards offer a low or no payment during the initial issue. Some credit issuers offer their card as a lifetime free card with no annual fees. There are also secured credit cards, which come with a value-back program. Responsibly managing these cards can help you earn back and also achieve rewards at an accelerated rate.
Getting issued a secured credit card will help you build your credit score. Making payments on or before time will again build up your score. However, defaulting on payment may remain a permanent black mark, drastically reducing the credit score. Effective utilisation of credit cards is also essential to manage the credit score. Utilisation of credit cards above the limit will reduce the credit score. This is because it shows the inability of the individual to manage the credit received efficiently.
A transition to unsecured credit cards may be attempted by showing responsible management with secured credit cards. Unsecured credit cards can offer you a higher limit of credit and even give you better benefits when compared to secured cards. However, it is important for the individual to align with the savings mentality irrespective of the type of card used.
The issuer of credit cards keeps close monitoring of the style of spending and may offer an upgrade in the credit card. The credit card upgrade will offer higher spending power with additional cashback or any other offer. If the credit issuer is not offering a transition to upgrade cards, you can apply for an unsecured credit card. However, it is highly recommended that the transition to an unsecured credit card be tried after at least six months of responsible usage of a secured credit card.
