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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 provider’s view you as a risky borrower. By using 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 credit products. Once you’ve improved your credit, you can close your account, get your deposit back, and apply for a credit card with more benefits.
It can be challenging to get approved for credit, particularly if you have little or no credit history. But to build a credit history, you often need access to credit. So, what is a person to do?
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 and is secured on the card.
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 | Top features | |
|---|---|---|---|
|
1. No Fee Home Trust Secured Visa* Card - WINNER |
$0 | $0 | Rebuild credit + Purchase protection insurance |
|
2. Plastk Secured Visa Credit Card - Runner-up |
$68 | $48 + $6 monthly fee ($72 per year) | Monthly credit score update + 25-day interest-free grace period on purchases |
|
3. KOHO Standard Prepaid Visa Card - Runner-up |
$180 | $0 | Earn cash back + Low foreign exchange fees + Personalized financial coaching |
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.
Home Trust also offers the Home Trust Secured Visa* Card with a lower interest rate for a $59 annual fee. However, appealing as this may seem, cardholders looking to rebuild credit should aim to pay off their credit card balance in full each month. The No Fee Home Trust Secured Visa* Card is one of the safest and best options.
The Plastk Secured Visa Credit Card regularly reports to credit bureaus like Equifax and TransUnion as cardholders make payments to build or rebuild credit. Members can track their progress with monthly updates and increase their card limit to suit their needs as the security deposit determines it.
According to our Best of Finance methodology, the average Canadian will see $68 in points within the first year, which is low compared to many rewards credit cards. However, few secured credit cards offer rewards or other perks included on this card.
The average Canadian can also save around $40 in interest charges over the first 12 months if they choose to use the balance transfer feature.
Annual fee:
$48
Monthly maintenance fee:
$6 ($72 per year)
Credit limit (deposit):
$300 to $10,000.
Limited time offer/bonus:
Offer expiry date: N/A subject to change without notice
Rewards:
The KOHO Standard Prepaid Visa Card is not a secured credit card; however, it features an affordable tool to help cardholders build their credit. Credit Building by KOHO costs users a budget-friendly $7 a month for six months to use. When the six-month subscription ends, cardholders can repeat the process as many times as they need.
Since the card is prepaid, cardholders can load funds onto the card and will never have to worry about spending over their means. They will also earn 0.5% back on all purchases and can access personalized financial coaching through the app.
According to our Best of Finance methodology, the average Canadian would earn around $180 in rewards in the first year.
Annual fee:
$0
Limited time offer/bonus:
Offer expiry date: N/A subject to change without notice
Rewards:
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. In order to obtain a secured credit card, you are required to put down a security deposit. The security deposit can range from $200 to $1000 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 payed of 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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