Yes, if you have a fixed deposit, you can use it to improve your credit score (also called your CIBIL score). This is important because your credit score impacts your eligibility for different kind of credit facilities, like auto loans, home loans, personal loans, and even credit cards. Here’s a look at how fixed deposits can help improve your credit score.
Get a credit card against a fixed deposit
If you have a fixed deposit, you can ask your bank to issue a credit card against that. The best way is to choose your preferred credit card and open an FD with the same bank. Once you have such a credit card, you can:
- Use it regularly for shopping and making bill payments.
- Make sure to repay the credit on or before the due date.
- Always pay 100% of the bill amount on each payment cycle to strengthen your credit score.
- Avoid hitting the credit limit every month.
These simple steps can help you build your credit score from scratch or improve it after settling a loan. Remember that delays and misses in making monthly credit card bill payments can negatively impact your credit score.
What to consider when using an FD to improve your credit score?
While the regular use of a secured credit card does improve your credit score, there are some factors to keep in mind:
- The credit limit is set below the principal amount of the linked FD. It could be as much as 90% of the amount you’ve invested.
- The FD is automatically renewed after the end of each term.
- You cannot break the FD without closing the credit card. It’s only after the credit card is closed that the FD amount will be credited to your savings account and become available for you to use.
- You get only one credit card against one fixed deposit.
What to consider when choosing the credit card?
It’s important to choose the right card to improve your credit score. Here are some factors to consider:
Interest rate on outstanding amount – All credit cards will levy interest on the amount that you have not repaid on time. To avoid this, you can set up auto-debit to ensure you never miss a payment.
Fees and charges – Some credit cards come with annual fees as well as charges on foreign transactions, cash advances, balance transfers, and late payments. A credit card with very high fees and charges add to the burden of making timely repayments. On the other hand, the Kotak811 Dream Different Credit Card is a lifetime free card, with a credit limit of 90% of the FD amount.
Rewards offered – Some cards offer attractive rewards, like cashback on achieving a spending milestone and redeemable points when you make purchases.
Added benefits of a credit card against a fixed deposit
Here are some advantages of getting a credit card against an FD:
- It is very easy to apply for such a credit card, whether online or offline. The documentation and background checks are minimal.
- Income proof is not required.
- Your chances of being approved are high, irrespective of your current credit score. This is because the credit card is secured by your fixed deposit (your FD is a collateral for the credit).
- You continue to earn interest on the FD.
It’s important to read and understand the terms and conditions when you apply for a credit card against an FD online or offline. Always ask if there are additional benefits that the card issuer can offer.
Since your credit score reflects your repayment history, just making a fixed deposit will not help. Getting a credit card against this FD, using it regularly and making timely payment of bills is the winning formula. Good luck with improving your credit score!
