I know a friend who hesitated to apply for a credit card because, he thought that his chances of getting approved are low. He was straight out of college and wanted to make some purchases online. But online purchases need a credit card (these days, debit card is also fine.) and he didn’t have one. He didn’t apply for one and bought it on cash on delivery but that’s not what he should’ve done.
Because, getting a credit card for the first time is easy in India. All thanks to something called as secured credit cards? What the hell is a secured credit card?
Well, think of it like this. Show the bank that you have some money with you already (even though you are jobless). Hand it over to the bank. Then the bank will give you a card which will have a credit limit for that much money. You can use it for whatever you like, as any other credit card would let you.
Sounds stupid, right? Well, technically, yes. But in working? Not really. (Check out the best credit cards for Students here.)
First off, if you are trying to get a credit card for the first time, you don’t have a chance. Because, you are in the classic chicken and egg situation.
The chicken & egg situation for first time credit card applicants
“Do you want a credit card? Ok, show me your credit history.” – This is what banks will ask you normally.
What do you do? Show them how much you’ve been spending with other credit cards and how much you’ve paid back (your credit history). Now, this bank will give you either the same amount of credit or a little more based on your credit worthiness.
So, what will folks like students who just finished college, got into first time job and even self starting entrepreneurs do? They cannot show a credit history! How will they get a new credit card?
This is the classic chicken and egg situation for first time credit card applicants. You can only get a credit card if you show the credit history. And, for the credit history, you need a credit card. Bummer!
So, how to get a credit card for first timers in India?
Like I said. Enter “secured credit cards”. Almost all leading banks like Axis bank, ICICI bank, Standard Chartered bank etc all offer secured credit cards for first timers. Here’s what you do.
Pool in some money from somewhere. Not any huge amount, but whatever you can pool in.
Then give it to the bank as a fixed deposit. (Some banks will even take a regular savings bank account). Now, apply for a secured credit card with the same bank. (Ideally, one that you have had long term relationship with).
Now you have a secured credit card with you. It is as good as a credit card, it’s just that the credit limit is low or equal to the amount you have in the bank as fixed deposit or savings bank deposit.
Now, how to get other credit cards?
This is the best part. Here’s what you do. Use your secured credit card to build credit. You know the drill, right? No? Ok, here goes.
- Keep spending on your secured credit card for under 10 – 20% of your credit limit every month. Ex: if your credit limit is 10,000 Rupees, spend for 2000 Rupees every month.
- Once the bill comes out, pay it in full, like a king! (Ha, that feeling!) Ex: If the first month bill is for Rs. 2000, pay it in full.
- Repeat this for 6 months to an year.
- Never miss a bill, and always pay it in full.
- Do not pay more than 20%. (Not a big deal because your money is in the bank anyways, but still..)
Now, after one year (or 6 months), go to the bank, or call them up and ask for a credit limit increase.
What that means is, if your current credit limit is Rs.10,000 (because your fixed deposit is so much), ask for a 10% credit limit increase. Most banks will give you a raise if you have been paying the bill all these months. Some may be stingy, and give you a 5% or something. What ever it is, get it.
So now, you have a little bit more credit limit. By this time, your credit history would have grown a little bit (6 – 12 months) and your credit score bumped up to a decent score.
Now, you are in a better position to apply for a slightly better (actual) credit card. You might still have to get a job or show income proof etc (the usual drill) but since you have built some credit history, your chances of getting another credit card is high. Let me also warn you that, you might not get a high value credit card, but something for beginners with decent benefits etc should be possible.
If you are interested in getting some good credit cards, here are the best I put together.
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