Can an FD-backed credit card help recover from a poor credit history?
Money mistakes happen to the best of us. Missed EMIs, delayed bill payments, or overusing credit limits can quietly erode a credit score. And once that happens, getting approved for a new card or loan can start to feel impossible. However, there's one financial product that's often overlooked yet surprisingly effective in rebuilding trust with lenders — an FD backed credit card.
Understanding the idea behind it
A fixed deposit (FD) credit card is not a regular credit card. It’s issued against the amount you’ve parked in a fixed deposit. Think of it as a second chance to show you can manage credit responsibly, without the bank taking too much risk. Your FD works as a security deposit. The bank uses it to decide your credit limit usually a percentage of your deposit value.
This setup benefits both sides. You get the convenience of a credit card and the opportunity to rebuild your score. The bank, on the other hand, has an assurance that your credit line is backed by a deposit it already holds.
Why it’s ideal for someone with low credit
If your credit history is less than perfect, traditional banks may hesitate to issue you an unsecured credit card. But with an FD-backed one, approval is far easier because your fixed deposit acts as collateral.
Here’s how it helps you recover step by step:
Guaranteed approval: Your application is less likely to be rejected because the bank has your FD as security.
Lower risk of default: Since your credit limit is linked to your deposit, it encourages responsible spending.
Chance to rebuild: By paying your bills on time every month, you can slowly regain your lender’s confidence.
No dependency on old scores: Even with a poor CIBIL score, you can still qualify, giving you a fresh start.
Each on-time payment gets reported to credit bureaus. Over time, this consistency can push your score upwards.
How it works in practice
Let's say you have a fixed deposit of ₹50,000. Based on that, the bank might issue a credit card with a limit of approximately ₹40,000. You can use it just like any other card — for shopping, fuel, online purchases, or bill payments. At the end of the billing cycle, you'll need to clear your dues.
If you delay or skip payments, the bank will not immediately withdraw your funds from the FD. Instead, they'll charge late fees or interest, just like with regular cards. However, if you repeatedly fail to settle your dues, they can recover the amount from your deposit. This approach is safer for the bank, but it also keeps you disciplined.
The right way to rebuild your credit with it
Simply getting the card is not enough. Here’s how it determines whether your score improves or not. Here are a few things to keep in mind:
1. Spend wisely: Use it for planned expenses only. Avoid exhausting your full credit limit. Ideally, stay below 30–40% of it.
2. Pay before the due date: Timely payments matter more than anything else. Even a single delay can undo months of progress.
3. Keep the FD active: Don’t prematurely withdraw or close the deposit. Keeping it intact shows consistency.
4. Monitor your score regularly: Check your credit score every few months to see how your efforts are paying off.
5. Avoid applying for multiple loans: Too many credit applications can signal financial stress and affect your score further.
This disciplined pattern over a few months builds a strong repayment track record which your credit report needs.
Why an FD-backed card stands out
There’s something reassuring about rebuilding your financial standing through your own savings. You’re not borrowing without backing; you’re leveraging your deposit to regain trust. Unlike other recovery methods, such as taking small personal loans or secured loans, this option offers flexibility and control.
You can choose your FD amount, manage your limit, and even upgrade to a regular credit card once your score improves. Many users find this route far more convenient and confidence-boosting because it helps rebuild their reputation quietly, without large commitments.
What to watch out for
Like any financial tool, misuse can work against you. Missing payments, overspending, or constantly revolving credit can hurt your progress instead of helping it.
Be mindful of:
High interest rates on unpaid balances.
Annual fees or renewal charges.
Losing interest earnings if the FD is liquidated prematurely.
Knowing these limits helps you make smarter choices and ensures the card remains a step forward rather than another setback.
When to consider this option
If you're finding it hard to get a regular credit card, or if you're trying to recover from past defaults, this could be the right time to explore it. Even if you're new to credit altogether, it's an excellent way to build a solid history from scratch.
A product like the Kotak811 FD credit card enables you to strike a balance between security and growth. You can keep your savings intact, enjoy access to credit, and gradually regain financial credibility.
A steady road to financial recovery
Recovering from a poor credit record isn’t about quick fixes. It’s about showing reliability month after month. With an FD-backed credit card, you get the structure to do just that, giving you a simple, secure and smart path to rebuild confidence in your financial profile.
In the end, what matters most is consistency. Paying your dues on time, spending within limits, and keeping your deposit untouched will all contribute to a stronger, more dependable credit history. It’s proof that you can recover, not by avoiding credit, but by handling it wisely.
Disclaimer: This article is published in association with Kotak811 and not created by TNM Editorial.