Secured Credit Cards v/s Debit Cards | What’s the Difference? | Singapore

Bank Accounts | Credit Cards

Secured Credit Cards

You have heard of credit cards and maybe you possess a few also but do you know about unsecured and secured credit cards and how are they different. The most popular ones are unsecured credit cards that are issued by the banks if you have good credit history and good employment record. Normally, here you get credit to the tune of 4x your salary, say if your salary is S$2000, you may get the credit of S$ 8000. In Singapore, most credit cards are unsecured lines of credit.

In case you are unable to meet the credit criteria specified by the bank for an unsecured credit card, maybe due to your poor credit history, a secured credit card is the answer. With these secured credit cards, you can even build your credit history which will help you going forward.

For these credit cards you need to deposit collateral in the form of fixed deposits, so that lender can offset the debt using a deposit as collateral in case you fail to repay. In case of default from your side for repayments, your fixed deposit is a security deposit from a bank’s viewpoint.

Things to Know ?

You need to assess what kind of usage pattern you will follow with a secured credit card, then only you make a fixed deposit with the bank. You cannot break this FD until you are using the card. In case you are not able to honor your payment before the due date, the outstanding will be met from this deposit. Your approved credit limit would also be in the range of 80-100 % of your fixed deposit.  For the effective usage of your card, you need to make regular payments, on or before regular due dates as this will accrue interest on the unpaid balance. There is also an interest – free period if you pay your account in full each statement period. Besides, if you choose to withdraw money from an ATM, interest will be applicable immediately.

The interest rates for secured cards are generally lower than unsecured credit cards, which apply on any balance that you have not paid by the statement due date. Moreover, your credit report is also shared by credit agencies mentioning your repayment history.

How a Secured Credit Card differs from a Debit Card?

Confused? There is a difference between the two. Unlike a secured credit card, where the fixed deposit you make with the bank holds the key, the debit card is linked to your transaction account. For most people, this is the account where they get their salary credited. This account is primarily used for day-today expenses and payment of other utility bills or even ATM withdrawals. A secured credit card can be opened with a single cash deposit.

A secured credit card is a line of credit from a bank. A fixed deposit of your own money is used as a security. The bank issues a credit limit based on the size of the deposit. You’ll need to repay what you spend in addition to any interest charges. Also, you will have to pledge a minimum fixed deposit amount of say S$10,000.

You need to pay regular repayments with your secured credit card whereas, in debit cards, the sums are immediately debited from your account as soon as you swipe it.

Debit cards also provide with you with bankruptcy option. You can apply for a debit card account even if you’re bankrupt whereas secured credit cards won’t approve your application if you’ve been bankrupt in the past two years.

If you hold a secured credit card, bank reports your repayment pattern to credit agencies which can help you in improving your credit score.

Also, you cannot withdraw your fixed deposit as long as you own a secured credit card against that particular fixed deposit account.

This way we see that both have different merits, you need to decide according to your requirements. So, use your card carefully, particularly if it is a secured credit card.