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If you have bad credit or little to no credit history at all and you’re ineligible for most credit cards, you can still improve your credit score with a secured credit card.
Secured cards require you to put down a security deposit that is equal to or less than the limit of a card, depending on your credit history. The deposit acts as a security for lenders, protecting them against missed bill payments. As a credit card user with a low credit score, credit card providers view you as a risky borrower. With a secured credit card, you have the advantage of using the deposit in case you can’t pay your credit card bill.
In general, secured cards are usually not associated with the best rewards programs or the lowest interest, so you should always think of secured cards as a stepping stone to other, better credit products. Once you’ve improved your score, you can close your secured credit card account, get your deposit back, and apply for a credit card with more benefits.
It can be challenging to get approved for a credit card if you have a rocky credit history. But to build good credit, you need access to credit. It's a bit of a conundrum. How do you break the cycle?
A secured credit card is an excellent first step. This handy little product can benefit those who are new to credit or need to improve their credit, and it works much like a standard credit card.
Cardholders can usually pay bills, purchase items in-store and online, and access a credit limit. However, the credit limit is determined by a deposit set by the cardholder, which the credit provider will draw from if you don’t pay your bills.
The cardholder is responsible for paying their statement each month and will also owe interest if they carry a balance. With each payment made on time, the positive information is reported to the credit bureaus in Canada and should slowly build or increase the cardholder's credit score.
Over time, the cardholder may qualify for unsecured products and should be able to get their initial deposit back.
We compared secured credit cards in Canada using our Best of Finance methodology and ranked the cards that provided the highest value. Though, in this case, we felt that annual rewards and savings were not the most important benefits. Cardholders would get the best value from a no-fee card that focused strictly on building credit.
| First year value* | Annual fee | Annual fee | |
|---|---|---|---|
|
WINNER |
$240 | $0 | Earn cash back on all your purchases. |
|
Runner-up |
$0 | $0 | Rebuild credit and enjoy purchase protection insurance. |
|
Runner-up |
$0 | $59 | If you keep up with your card payments your credit score will improve. |
Neo Secured Mastercard allows you to start with as little as $50 in security funds, bypassing hard credit check. That’s because your credit limit is equal to the amount of security funds you set aside.
The offering comes with guaranteed approval and no annual fees, allowing you to build your credit history – provided you continue to pay on time. And thanks to Neo Financial’s Insights app, you can get a complete view of your spending habits, including your purchases, your average, and details by category.
You can also make use of flexible credit limits and earn cashback rewards on all your purchases, including:
Finally, you can enhance your rewards with perks, flexible monthly subscriptions that boost your cashback and unlock extra benefits for your account.
Annual fee
$0
Welcome bonus
Earn up to 15% cashback on first-time purchases at Neo partners
Rewards
You can earn:
Earning potential
How does this card stack up to other rewards credit cards? We crunched the numbers using our Best of Finance methodology to see how much an average Canadian could earn over a 12-month period.
Rewards earned over a 12-month period + Welcome Bonus = $240 + $0 = $240
Annual fee = $60 ($5/ month)
Total earned over a 12-month period (rewards minus annual fee) = $180
Benefits
Insurance coverage
The No Fee Home Trust Secured Visa Card allows cardholders to build or rebuild their credit for no annual fee. Cardholders can set their credit limit based on a deposit ranging from as low as $500 to as high as $10,000. Shop online, pay bills and use the card anywhere Visa is accepted — just like an unsecured card.
If you keep up with the payments, your credit rating should improve, whether you are just starting to build your credit, or your credit score needs some repair.
Annual fee
$0
Benefits
Insurance coverage
As an alternative to the No Fee Secured Visa Card, Home Trust also offer a standard Home Trust Secured Visa Card, which comes with a small annual fee of $59 and a lower interest rate of 14.90%. In addition, your balance would need to be paid off in full each month.
As is the case with No Fees option, you can use this card in more than 200 countries and territories, with an immediate and reliable method of payment anywhere in the world. You also have the option to use contactless technology wherever it’s offer – to shop more safely.
Annual fee
Insurance coverage
If used the right way, a secured credit card can help you rebuild your credit and become eligible for a higher limit and better rewards credit card in the future.
Here’s how to make your secured credit card work for you:
Applying for a secured credit card? Here’s everything you need to know about secured credit cards.
If you have no credit history in Canada or a low credit score, you are eligible to apply for a secured credit card. Unsecured credit cards may require a higher credit score (600 or more), so secured credit cards are a better option if you’re looking to rebuild or establish your credit history. To obtain a secured credit card, you are required to put down a security deposit. The security deposit can range from $200 to $1,000 depending on your current credit score and credit requirements. This security amount determines your secured credit card’s limit and acts as insurance against your spending.
Typically, yes. Credit card lenders may not always require you to have an income for a secured card, but if you’re able to show some form of income, you have a higher chance of being approved. Your ability to pay off your credit card bill is tied directly to your income, making income a determining factor for your approval.
It is easy to get secured credit cards and prepaid credit cards confused. The main feature that differentiates them is their function. When you use a prepaid card, you ‘prepay’ the amount you are intending to spend. It is a reloadable credit card, and it doesn’t help you rebuild your credit like a secured credit card does. If you want to avoid using traditional credit or debit cards, you can consider applying for a prepaid credit card. Prepaid cards are relatively easier to obtain and require no credit checks, but they won’t help you with your financial future.
If you want to improve your credit score, a secured credit card is a better option. A secured credit card functions more like a traditional credit card, but comes with the requirement of depositing a security amount.
When you responsibly use a secured credit card, your credit card activity is reported to major credit bureaus like TransUnion and Equifax. As you pay off your secured credit card bill regularly, you begin to generate a positive impact on your credit, creating a good credit history. As long as you don’t miss payments, you can continue seeing a slow and steady increase in your credit score.
With your security deposit in place, you don't have to worry about debt collectors contacting you for missed payments on the card, but any late payments will hurt your credit score. Use your secured credit card in responsibly to rebuild your credit history.
When you apply for a secured credit card, you lay down a deposit which you are guaranteed to get back so long as your secured credit card bill is paid off when you close the account. Once you’ve decided that your secured credit card has helped you rebuild your credit score, you can close or upgrade your credit card, and this will allow the lender to refund your security deposit.
Find the best credit card for your lifestyle today!
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