In India, your creditworthiness is assessed through your past financial performance. Banks assess your credit rating, repayment record, and outstanding loans in deciding whether to issue a credit card to you. Thus, if you are a first-time applicant, despite having stable income or savings,you often face one challenge:
Lack of credit history implies restricted eligibility for unsecured credit cards. Here, FD-backed credit cards come into play.
What is an FD-backed credit card?
FD backed credit cards are secured credit cards that use the Fixed Deposit as collateral. In place of looking at one’s salary or CIBIL score, banks use their Fixed Deposit to secure them. It simply means that the Fixed Deposit itself provides you access to the world of credit. Your FD remains intact and keeps on earning interest while providing you security in the form of a credit card.
How FD-backed credit cards work
You open a fixed deposit, and the bank issues a credit card against it. The credit limit is usually a percentage of your FD value, and you can use it like a normal credit card for shopping, bill payments, or UPI transactions. Your FD remains untouched and continues earning interest. Only a lien is placed on it as security. This makes it one of the safest ways to begin your credit journey.
FD-backed credit card eligibility in India
Eligibility criteria is very simple and beginner-friendly:
The minimum age should be 18 years, having a PAN card and Aadhaar card, along with being a resident of India. The applicant should maintain a fixed deposit with their bank, which can begin with low ticket sizes. Income proof and credit scores are not mandatory, making this loan very popular among first-time borrowers.
Key Features of Credit Cards Backed by FD
FD credit cards have features such as regular credit cards like net banking, UPI transactions, and bill payments. The credit is also dependent on your FD amount, mostly in high percentages of your FD value, thus giving you structured usage.
You will continue earning interest on your FD (up to 6.5%) while using the card. You will also get up to 45 days of interest-free credit period when your complete bill payment is made within that duration.
Everything about it is digital, thus being easy to onboard. Also, your FD will be regulated by RBI and insured by DICGC up to ₹5 lakh.
Why FD-backed credit cards matter for beginners
FD-backed credit cards are not designed for higher spending. They are designed for credit score building and first-time access to credit.
They help you:
- Start credit journey without prior history
- Build repayment discipline
- Begin generating a CIBIL score
- Learn responsible credit usage
Credit building is not instant. It is created through consistent repayment behaviour over time.
Making credit access simpler for first-time users
Conventional credit cards demand financial credibility. But credit cards backed by FD have minimized the need for financial history by utilizing the FD as collateral.
It has become easier nowadays as individuals can begin with an FD amount starting as low as ₹2,000 based on different platforms. During the time that FD earns interest, it acts as collateral for the credit card and provides a credit limit as per 90% of the total FD value.
Through this, newbies can easily get involved in the process without any financial stress and gain complete features like a standard credit card such as UPI payment facility.
FD-backed credit card benefits
Key benefits include:
- Can build CIBIL score from scratch
- No income proof required
- FD keeps earning interest
- Low chances of rejection compared to unsecured credit cardsOperates like any other credit card for routine transactions
- This makes it a feasible option for improving credit scores in India.
Common myths about FD-backed credit cards
The first misconception is that your FD account gets frozen or blocked. This is untrue. Your FD account will continue to earn interest until maturity. It will just be noted as collateral.
Secondly, some think that secured credit cards do not establish any credit history. Actually, they work just like regular credit cards when it comes to reporting payment behavior to credit bureaus.
Thirdly, people have this notion that this program caters only to individuals with poor credit scores. However, this program is actually meant for beginners without any credit history.
Interest and Taxation on FD-backed credit cards
The FD will continue to accrue interest at the prevailing FD rates of the bank. This interest income would fall under “income from other sources,” which will be taxed depending on your income tax slab. In case your interest income exceeds the threshold limit, TDS would be deducted. However, the FD will not be impacted in any way during the entire period.
Who should use FD-backed credit cards?
This is ideal if you are:
- New to credit
- Refused credit cards because of lack of CIBIL report
- Interested in improving credit scores in a safe manner
- Desire a controlled introduction to the credit system
- If you have a strong credit score or high-end credit cards, then this step might not be required for you.
FD-backed credit card vs regular credit card
A regular credit card requires income proof and credit history, while an FD-backed credit card uses your fixed deposit as security. Both help build credit history, but FD-backed cards are easier to access for beginners.
Final thoughts
FD-supported credit cards are not about boosting spending. Rather, it is about initiating credit access in a systematic and secured manner. You don’t have to wait for credit approval based on previous creditworthiness. Instead, you can build your credit record through your savings.
This is not a quick fix. It is simply a way of initiating something. And in financial management, a good start can sometimes be more important than speed.
For more information on this
If you are interested in learning about or applying for FD-based credit card schemes, you can contact the Money Buddy team, who will assist you in this process.
FAQs
Does an FD-backed credit card help build a credit score?
Yes, an FD-backed credit card does help you build a credit score as your payment behavior will be recorded at the same bureaus as any other credit card. If used responsibly, it will help you build a healthy CIBIL score from scratch.
Is the FD locked when using this card?
Your FD will not be liquidated, but it will have a lien on it as security for your credit card. Therefore, you will not be able to withdraw it until your credit card is active. However, your FD will continue accruing interest even during this time.
Are FD-backed credit cards better than regular credit cards?
Not really. They are not superior nor inferior. This is because they are meant to be used by totally different types of people. While normal credit cards are meant for people who already have a credit score, the FD-linked credit card allows newcomers to become part of the credit world.