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How to get a credit card with no credit or bad credit

Having good credit history is very important in Canada. A good credit score lets lenders know that you are likely to repay a loan, which will help you to become eligible for all kinds of financial products in the future. Your credit score ultimately reflects your ability to manage debt, and a good credit score lets lenders know you’ve successfully handled credit repayments in the past.

But how do you get a credit card if you have bad credit, or no credit at all? Read on to learn more.

What is a credit score?

Your credit score is a three-digit number that represents your creditworthiness to lenders. It factors in your payment timeliness, the amount of debt you have relative to your credit limits, and the length of your credit history. In Canada, credit scores range from 300 to 900. Credit bureaus like Trans Union and Equifax monitor your credit every month. While every credit issuer considers multiple factors, credit score over 660 is considered good credit. A higher score shows the lender that you have a better likelihood of repaying your debts on time. You should never let bad credit keep you down. A secured credit card can help you rebuild/build your credit score and become eligible for future loans and rewards credit cards.

Credit score ratings in Canda
Credit score Rating
300-579 Very Poor
580-659 Fair
660-739 Good
740-799 Very Good
800-850 Excellent

What is a secured credit card?

Just because you have bad credit doesn’t mean you can’t get a credit card. A secured credit card actually helps you to improve or establish your credit score. When you apply for a secured credit card, you are required 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 any missed bill payments. When you’re a credit card applicant with a low credit score, the credit card providers view you as a risky borrower. One of the most important parts of building credit is paying bills on time. Paying your monthly secured credit card bill on time will alert the credit bureaus and help you build your score bit by bit.

Learn more about secured credit cards.

Here are the main benefits of using a secured credit card

See all the benefits you’ll get with a secured credit card.

  • Zero liability: You won’t be held responsible if your secured credit card is stolen or used for fraud.
  • Fraud alerts: Any suspicious activity will be reported to you to protect your overall credit history.
  • Security deposit: Your security deposit will protect you and your lender from any default payments. If you don’t use the security deposit and end up closing the credit card to move onto a rewards credit card, you’re entitled to receive your full security deposit back.

Trying to improve your credit score. Here’s what you might be wondering.

How long will it take to improve my credit score with a secured credit card?

The length of time that takes you to improve your overall credit score depends on the severity of your credit score. If your credit is not too bad, it could take you somewhere between a few months to six months of making your secured credit card payments on time to improve your score. If your credit is below 580, it might take you a few years to get your credit score to where you want it to be. Anyone who has declared bankruptcy can expect to take seven years to improve their credit.

Will debit or prepaid cards help me improve my credit score?

No, debit and prepaid card payment history is never reported to credit bureaus like Trans Union or Equifax, so these cards will not help you improve your credit score.

You can improve your credit score using a secured credit card. When you responsibly use a secured credit card, you can improve your credit score as your positive credit behavior will be reported to Trans Union and Equifax. Just make sure you are always paying your credit card bill on time. After improving your credit score through a secured credit card, you may be able to qualify for a regular credit card.

What is an unsecured credit card?

Credit cards issued without a security deposit are called unsecured credit cards. By issuing you an unsecured credit cards, the issuer is giving you access to credit based on your credit history. Your credit score and credit history allows lenders to determine your credit worthiness and the amount of credit you should receive. If you have good credit, you have a better chance of getting a high credit limit. A poor credit score, means your credit limit will most likely be low.

Tips for improving your credit score

After getting a secured credit card, you have to ensure that you follow good credit habits as credit agencies focus on several factors when they calculate your credit score. Follow these helpful tips to improve your credit score:

  • Always make regular payments: Always pay your credit card bills on time. If you are low on funds, pay the minimum payment to avoid any extra fees.
  • Pay even during disputes: If you find yourself in a dispute with a merchant, always pay the owing balance due. Pending refunds can be applied to your credit later.
  • Don’t overuse your credit: Don’t use your full credit limit. Avoid using more than 30% of the credit available to you.
  • Limit credit checks: Avoid multiple hard checks on your credit. Hard credit checks are done by lenders when you apply for a loan or credit card. Too many hard checks can lower your credit score because you’ll appear to be a borrower who needs a lot of credit.
  • Monitor your credit reports: Regularly check your credit reports to ensure that you’re not a victim of fraud or credit calculation errors. You can check your own credit through Equifax or Trans Union in Canada. This will not result in a hard check.
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