Priya is in her early 20s. Just her dream job with a great salary. She is achieving the milestones at such young age, which no one in her friend circle has achieved. With that, she also got an arrogant attitude towards everything and specially for her spendings. She had completed her studies by taking an education loan. The time had started where she had to start paying her loan Installments. Also, as her salary was 6 digits per month, she had great credit cards with various benefits. But little did she know that with great power comes the great responsibilities. Shopping, parties, lending money to friends, travels had become her lifestyle. She was happy! Then came a point where she thought of taking a personal loan. When she applied for a personal loan in the first bank, her application was rejected. She was surprised, inspite of having such a great salary, why was her application rejected? She applied in 2-3 other banks, but all her applications we rejected.
The low cibil score was the reason of all the rejection of her loans. With the recklessness; her payments for the education loan taken by her for the graduation, were not in time. The credit card utilization was way more. The credit card utilization ration was not maintained. Also, the credit income ration was totally off balance. Now, taking a personal loan was a requirement for Priya. So, with all the kind of research, she came across a solution of taking a credit improvement company's help. The credit improvement companies like Credit Sudhaar not only help in getting the score better but also help in getting the required loan with lesser interest rates. She was given an option of taking a secured credit card.
What are Secured Credit Cards?
Basically, there are 2 types of credit cards. Unsecured Credit Cards and Secured Credit Cards. Unsecured credit cards are the usual once where you are given credit for the specific time, (mostly a month) to spend first and pay later. There would not be any interest charged for that specific amount of time till the next bill cycle. In Secured Credit Cards, you have to keep a Fixed Deposit in a bank of any amount which bank offers. And you get the credit card on 80% or 90% of the value of FD.
It credit cycle still goes the same the way. Like, you swipe the card, use the money, have 1 month period and pay after a month. But the only difference here is that just in case you fail to pay on time, or you make a default payment and do not pay at all, the bank will deduct that amount from your FD and clear the payment.
How does Secured Credit Card help in rebuilding the credit?
As Mentioned above, in these types of card, the FD is kept as security. So even if the person fails the payment, the bank will make it by taking the money which was kept in fixed deposit. So there is no chance of not paying the amount used.
Also, as a human being, we get this alarm back in our head that even if we use the card recklessly, its only our money which is going to be disbursed in the account to clear the payment. So a little sense of responsibility also comes in picture.
Now looking at these both scenario,s if you pay the amount on time, or not, the payments will definitely be done. Which will not hamper the score in any of the cases, infact would help in building one.
Using the finances responsibly is the martinet, but due to some reasons, if you are unable to do so, Secure Credit Card will be a great way to start to rebuilt your score. Priya, in that case, got herself on the ground, started taking her finances seriously. The advice given to her by the credit maintenance agency worked, and they even helped he in settling an account. After a few months, they also helped her get a better deal in personal loan!