The type of card you get, how you use it, and the credit card balance you carry can all be major factors in determining your credit rating. If you have bad credit and are having a difficult time getting a credit card, don’t worry; there are two different types of credit cards just for this reason: secured credit cards and unsecured credit cards.
The Best Secured Credit Cards to Help You on Your Credit Journey and How To Get Them
Those who have bad credit scores and/or are looking to get a better credit score often tend to lean towards secured credit cards because they’re one of the easiest ways to build credit. These types of credit cards require you to make a refundable security deposit equal to the limit you would like. This ensures they get their money back and helps rebuild their credit score.
Getting a secured credit card is actually pretty simple. All you have to do is apply online. Once you’ve submitted your application, the credit card issuer will check to make sure you meet their requirements. These usually include being of the age of majority in your province and having a valid piece of government-issued ID. Some issuers may also ask for your Social Insurance Number, but most secured cards have no strict credit score requirements. From there, all you have to do is pay the security deposit, and your card will be active. You’ll get this deposit back once the card is paid off in full and cancelled.
While it may still be possible to get an unsecured credit card depending on your debt-to-income ratio and your credit score, secured credit cards report the same way to the credit bureaus as a regular credit card. Hence, they are perfect for credit-building purposes.
Capital One Secured Mastercard
The Capital One Secured Mastercard (also called the Guaranteed Secured Mastercard) is a great credit card for those who are new to credit or who are looking to rebuild their credit score. That said, a security deposit is required. This helps the credit card company ensure you are committed to building your credit score.
Your credit card limit will be specified to you upon approval with a deposit. Another great feature of this credit card is that its interest rates are similar to those of an unsecured credit card. As long as you make your monthly payments on your credit card bill, you should see an increase in your credit score and potentially get an unsecured credit card in the future as well.
- Annual Fee: $0
- Minimum Credit Limit: $300
- Maximum Credit Limit: Not specified
- Interest Rate: 29.9%
- Cash Advance Interest Rate: 29.9%
The eligibility requirements are:
- You must be of the age of majority where you live
- You don’t already have a Capital One account or an application currently submitted for one
- Provide the required security amount
- You haven’t applied more than once in the last month
- You haven’t had a Capital One account in bad standing in the last year
Neo Secured Mastercard
The Neo Secured Mastercard differs from many other secured Mastercards in that you can earn rewards. Actually, it’s similar to most rewards credit cards, except for the fact that it requires a security deposit.
The credit card issuer also has an app you can pair with a Neo Everyday or Neo Savings account that shows you their partnered locations near you and your credit card balances. There are also different cashback bundles you can choose from to customize to your needs, including grocery purchases.
There is no annual fee, but the Build membership is billed monthly, so compare annual or monthly fees before you apply. Another great feature is that you can use your virtual card instantly upon approval, and your physical card will arrive by mail. With the Neo card, the minimum deposit is $50, but there is no specified maximum deposit.
- Annual Fee: Build membership for $9.99 per month
- Minimum Credit Limit: Not specified
- Maximum Credit Limit: $10,000
- Interest Rate: 19.99%-29.99%
- Cash Advance Interest Rate: 22.99%-31.99%
Like the Capital One credit card, the Neo secured card has guaranteed approval once you meet a few requirements, such as:
- You must be a Canadian resident
- You must be of the age of majority where you live
- You must pay the security amount
Home Trust Secured Visa Card
Just like the other 2 secured credit cards, the Home Trust Secured Visa is an effective way to build up your credit score. However, unlike the other cards, a hard credit check is required for this card. That being said, even with low credit scores and even a bad credit history, most applicants are approved. A great feature of this card is that it works just like an unsecured credit card and will build your credit score with the major credit bureaus, helping you get an unsecured credit card faster.
- Annual Fee: $0
- Minimum Credit Limit: $500
- Maximum Credit Limit: $10,000
- Interest Rate: 19.99%
- Optional Interest Rate with $59 annual fee: 14.90%
The eligibility requirements for this credit card are as follows:
- You must be of the age of majority where you live
- You must have a source of income
- You aren’t currently in bankruptcy
- Subject to other terms and conditions that include, but are not limited to, a credit check
Scotiabank Value Visa
Unlike the other credit cards listed, the Scotiabank Value Visa card is a standard credit card, not meant for poor credit, even though it is a great card to help you rebuild your credit score. The minimum credit score required to get this card is usually in the good-to-excellent range. The Scotiabank unsecured credit card has lower purchase interest rates than many other credit cards.
Even those at the Big 5 banks. However, along with the credit score requirement and credit check requirement, there is a minimum income requirement of $12,000. However, it does include discounts on car rentals and optional card protection in the event of life-changing situations such as losing your job, becoming ill, or even becoming disabled.
- Annual Fee: $29
- Minimum Credit Limit: $500
- Maximum Credit Limit: Not specified
- Interest Rate: 13.99%
There are some eligibility requirements for this card; however, you do not need to bank with Scotiabank to be approved.
KOHO Prepaid Mastercard
Lastly, we have the KOHO Prepaid Mastercard. So far, we have unsecured and secured credit cards, but we have yet to encounter a prepaid credit card. The main difference between a secured credit card and a prepaid credit card is that with a prepaid card, you can only spend the amount you put on it. In contrast, a secured credit card is mainly just a deposit, and you can have a higher credit limit than your secured deposit amount if you qualify.
With a prepaid card like KOHO, there is no credit check required and guaranteed approval. It is a great way to not just increase your credit score, but to do so without taking on more credit, as long as you choose the credit-building feature.
Once you get your KOHO card, you can select the account you like and subscribe to credit building, which includes guided credit-building tools, for only $10 per month. On top of reporting your monthly payments to the credit bureaus to increase your credit score, the KOHO card also has some neat perks like:
- A budgeting app
- 1-2% cash back on some purchases, 0.5% cash back on the rest
- Access to $100 of your next paycheque 3 days before payday for free
- Interest on your account balance up to 3.5%
- Activate your card and get a $20 cash bonus that you can use within 30 days
Which Secured Credit Cards Report to Both TransUnion and Equifax?
While all secured credit card options report to a credit bureau, only a few report to both Equifax and TransUnion. These include the Secured Neo Mastercard with Neo Financial, the Home Trust Secured Visa, and the Capital One Secured Mastercard. Having a credit card that reports to both bureaus, also known as dual credit bureau reporting, can help build your credit score in both places, since issuer reports determine which credit file gets updated.
Getting a Secured Card During a Consumer Proposal
When you’re in a consumer proposal, you can still get secured credit cards in Canada since nothing is stopping you from trying to improve your credit score. Because a deposit is required, approval can be much easier to obtain than with a traditional credit card. It can also help offset any negative marks on your credit report faster.
How Long Does It Take to Build Credit With a Secured Credit Card?
How long it takes to build credit with a secured credit card depends on your credit score when you first start. However, if you start with no or thin credit, it can take 3 to 6 months of consistent, on-time payments to establish an initial credit score. It can take 12 to 18 months to build a good credit score.
What Does A Good Credit Score in Canada Look Like?
If you’re looking for a good unsecured credit card that offers great rewards on everyday purchases and a good purchase interest rate without a minimum personal income, then you’re going to want to have a good credit score. It’s recommended that you aim to have a credit score of at least 700.
To have a credit score of at least 700, you’re going to want to have a positive credit history and a good credit utilization ratio. This means that you don’t want to use more than 30% of your credit limit at any time. This amount depends on the credit limits on your credit card account.
In fact, using a credit card responsibly is one of the most powerful ways to increase your credit score. So is making timely payments. Late or missed payments are reported to Canada’s credit bureaus and can negatively impact a healthy credit score. They may have even more of an impact than a limited credit history.
How A Secured Credit Card Helps You Build Your Credit Score
Having a low credit score can significantly affect your life, especially if you are seeking credit urgently. However, using a secured credit card responsibly can make a really big difference to your credit score. To do this, though, it’s important to understand how secured credit cards work.
Unlike traditional credit cards, secured credit cards require a security deposit. The card issuer holds this deposit until you pay off and close your secured credit card account. Your credit card limit, however, is the amount you put down as a security deposit. Even with a deposit, you still need to make the minimum payment on your balance on time so the issuer can report it to the credit reporting agencies.
Which secured credit card you choose will determine which of the two Canadian credit bureaus your payments will be reported to. It will also determine if you’re eligible for any rewards and what your interest rate will be. Just like the Financial Consumer Agency of Canada governs traditional credit cards, it also governs secured credit cards.
Other Ways to Increase Your Credit Score
While a secured credit card is a really effective way to increase your credit score, it isn’t the only way. Another great option for building credit is to use credit-building services. A good example of this is a credit-building loan. There are a few different options available out there, and they can provide you with the tools you need to get a real personal loan.
Another option, and technically the only secured card that doesn’t require a deposit, is the KOHO Mastercard, which Mastercard International Incorporated licenses. It’s also technically a prepaid credit card that allows you to earn cash back and purchase credit building as well. This means that your on-time payments will be reported to the credit bureaus to help you increase your credit score. This can speed up the process of getting an unsecured credit card.
Closing a Secured Card and Getting Your Security Deposit Back
When you close your secured credit card in Canada, you will get your deposit back in full as long as your balance has been paid. If there is an unpaid balance on your credit card, your security deposit will be used to cover that, with the remaining balance returned to you. You will receive your deposit back through direct deposit.
When Can You Upgrade From a Secured Card to an Unsecured Card?
How long it takes you to upgrade from a secured card to an unsecured card depends on the credit card issuer. Typically, after 6 to 12 months of using the card responsibly, you can be upgraded to an unsecured credit card whether you’re building your credit history from scratch or not. That said, some credit builder cards review accounts between 12 and 24 months instead.
The biggest difference between secured vs. unsecured credit cards is the refundable security funds. These are required to get a secured card and will be refunded to you when you upgrade to an unsecured card, provided you have no outstanding balance.
Increasing Your Limit on a Secured Credit Card
When you get your secured credit card, you initially set your credit limit with your deposit. You can then get a credit limit increase by increasing your deposit. However, you can also earn a credit limit increase with no deposit required, provided you use credit responsibly. Before a credit limit increase is given, though, your consent is required.
The Easiest Secured Credit Card to Get in Canada
In Canada, one of the easiest secured credit cards to get approved for is the Capital One Guaranteed Mastercard. That said, to get this card, you do need to be of the age of majority in your province, and you can’t have frozen credit. Your history with Capital One, if any, will also affect your approval.
Can Prepaid Credit Cards Help Improve Your Credit Score?
In Canada, prepaid credit cards don’t help with credit rebuilding or credit recovery. Even with a positive payment history, these amounts aren’t reported to the credit bureaus because no credit is involved. They essentially work like a bank account. Credit-building tools that can help improve your credit score include secured credit cards, credit-building programs, and traditional credit products.
What is a Good APR for a Secured Card?
While there are plenty of APR options available for secured credit cards, a range of 14.90% – 19.99% is considered good. Standard APRs range from 25.00% – 29.90%. However, using your credit card responsibly can help you avoid paying interest altogether.
Just like traditional credit cards, secured credit cards offer a grace period on purchases. This time period is usually 21 days. If you pay your statement balance in full every month before the due date, then you don’t pay any interest.
Secured Credit Cards for Newcomers to Canada
If you are new to Canada, a secured credit card is a great way to start building your credit and get traditional credit cards. While they do differ from a traditional credit card, many secured cards offer similar features, including:
- Price protection
- Extended warranty coverage
- Purchase assurance
- Statement credits
They can also be used to make foreign currency purchases, but foreign exchange fees apply. Depending on the card, you may also get perks like travel insurance, rental car insurance, and mobile device insurance.
How R7 and R9 Ratings Can Impact Your Approval Odds
When you’re looking to obtain new credit from credit card issuers, banks, or credit unions, a hard inquiry is conducted to determine your credit approval, so avoid multiple applications in a short period. Some banks may only require a soft credit check for line-of-credit pre-approval, but both will show your credit file.
An R7 rating indicates that you have a repayment plan with a Licensed Insolvency Trustee, such as a consumer proposal, while an R9 indicates that you have filed for bankruptcy. Even with fair credit, these can be seen as red flags to lenders and can make it difficult to obtain additional credit lines.
Monthly Membership Fees Vs Annual Fees
Whether you’re charged monthly membership fees or annual fees, the money is used to cover rewards programs, insurance and even account maintenance. If you have a monthly membership fee, this is billed to your statement every month and is easier for short-term cash flow.
Annual fees are charged once per year. They’re common on higher-reward credit cards and are easier to track. One thing to keep in mind is that you need to use the rewards program to make the annual payment worthwhile.
Lowering Your Credit Utilization By Paying Before Your Statement Date
Whether you go with a popular credit card like the Tangerine Money-Back World Mastercard or store credit cards, how much of your usage appears on your statement balance will impact your credit score. By paying your credit card before the statement balance comes out, you’re lowering your credit usage, which ultimately improves your credit score. The simplest way to do this is by setting up auto-pay.
To keep track of your credit profile and how your credit utilization is impacting it, you can check your credit score. In fact, some programs offer free credit score monitoring. In fact, you can check your Equifax credit score online using Borrowell, and your TransUnion score using ClearScore.
Credit Card Fees to Watch Out For
When it comes to credit cards, there are plenty of fees that you need to pay attention to.
Annual Fees: This fee is a yearly charge and is common for standard rewards programs. If a card offers perks like 1% cash back, it’s common for a fee to be charged.
Cash Advance Fees: Cash advances with credit cards often have higher interest rates than traditional purchases. There is also no grace period, so you get charged interest immediately.
Foreign Transaction Fees: When you purchase in another currency, there’s usually going to be an FX fee.
Merchant Surcharges: When you pay with a Visa or Mastercard, merchants outside of Quebec can charge customers a surcharge (Quebec residents don’t incur these fees), which can be as high as 2.4% of the purchase price.
NSF Fees: If your monthly payment fails due to insufficient funds in your bank account, then you could be charged an NSF fee.
Over-Limit Fees: When you go over your credit card limit, it’s not uncommon for issuers to charge an over-limit fee.
Balance Transfer Fees: While many credit card issuers offer balance transfer options that can help you save on interest, a fee is charged for the transfer, typically around 2% of the balance. It is then added to your credit card statement.
