Mayur Gupta

Mayur GuptaMost banks these days ask for a credit score from the applicant before extending a loan. Credit score is a rating which a rating agency assigns to an individual based on his past credit and repayment history. Higher the credit score higher is the chance of securing the loan at better terms. However if the previous credit record of the applicant is bad in case of which his credit score would be low, the bank charges exorbitant high rates of interest or in the worst cases rejects the loan application as well.

The applicant is in deep trouble if the bank refuses to extend the loan. He has a poor credit score thus can’t take a loan and unless he takes take a loan he can’t improve his credit score. This is a vicious trap he lands in. Fortunately there is an option an individual has in such a case:

  • Take a credit card against fixed deposit- Applicant should make a fixed deposit with the bank and against this fixed deposit take a credit card. Almost all leading public and private sector banks offer such a facility. However make sure that the credit card is used wisely- Spend within the credit limit and repay the amount well before the due date. Such Credit card transactions would help the individual improve his credit score. If continued for quite some time he would have a reasonably fair credit score which he can use to avail the bank loan.

Certain features of such a credit card are:

  • Most banks require that the amount of fixed deposit should be at least Rs 20,000.
  • Banks normally allows credit limit on such cards in the range of 70-90% of the amount of fixed deposit.
  • Some banks specify minimum duration which has to be there for the FD.
  • Fixed deposit can’t be tax saving FDs or flexible FDs or any such liquid fixed deposit scheme.

Therefore availing credit card against fixed deposit at bank could be used to improve your credit score. However such a facility has its own constraints and comes at a cost. Therefore it is suggested that individuals try to maintain a good credit history in the first place itself so that they don’t land up in a situation wherein they have to opt for such a route to get a bank loan.

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October 2021