Best Secured Credit Cards In Canada
A good credit score is a crucial part of your financial fitness and having a low credit score can be frustrating. The trouble is, to improve your credit score, you must have a credit card, but to obtain a credit card, you must have an established good credit history. So, if you’ve been denied credit recently, you’re probably wondering what your options are? Applying for a secured credit card may be the best solution for you. But what are the best secured credit cards in Canada?
You may have noticed a recommendation from the MyMarble platform to obtain a secured credit card to help you improve your credit score. For someone who may have no credit history, poor credit history or is new to Canada, obtaining a secured credit card can be the perfect way to help you begin your journey to excellent credit. Let’s learn about secured credit cards and how they can help you improve your score.
What Is A Secured Credit Card?
A secured credit card is a type of credit card backed by a cash deposit from the cardholder. This deposit acts as collateral or security on the account. This provides the card issuer with confidence in case the cardholder can’t make payments. Therefore, secured credit cards are often issued to borrowers who may have a below-average credit score.
Most credit cards issued are unsecured credit cards, which means you are approved based on your credit score and other factors. As a result, it can be difficult for borrowers who are subprime or credit-constrained to access credit. Since a secured credit card is approved based on a security deposit provided to your creditor, they are ideal for any consumer who is actively looking to improve their credit, who lack the required credit score to obtain an unsecured credit card.
How Do Secured Credit Cards Work?
If you’re applying for a regular unsecured credit card, your creditor has nothing guaranteeing that you will pay back the balance on-time. Therefore, your creditor will check your credit score, which provides them with a snapshot of your credit history and how you’ve paid back credit in the past. In addition, you’ll sign a contract to agree to pay back all or part of the balance monthly, alongside interest rates, to compensate for the lack of collateral.
However, potential creditors do not check your credit score when you apply for a secured credit card. Instead, they ask you to pay a security deposit for the credit limit you wish to obtain. For example, if you apply for a secured credit card for $500, you must provide your creditor with $500 cash to gain approval. Once you begin repaying your credit card, the card issuer reports your credit activity to the credit bureaus. This will raise your credit score if you pay your balance in full and on time each month.
How Can Secured Credit Cards Positively Impact Your Credit Score?
Many Canadians choose a secured credit card because each payment made is reported to the credit bureaus. Most importantly, if you pay your balance on time, it will positively impact your credit score.
When shopping around for a secured credit card, make sure to choose a creditor that reports your payments to the credit bureaus. Some card issuers may not do this, which will not help you improve your score. It’s important to remember that just like an unsecured credit card if you miss payments, lenders will report delinquencies to the credit reporting agencies, which won’t do your credit score any good.
How To Get Approved For A Secured Credit Card?
When applying for a secured credit card, you’re almost always guaranteed approval with little to no requirements. As we mentioned, your creditor will only ask you to provide a security deposit, which will provide you with approval for the credit card.
To apply for a secured credit card, you apply online and send the security deposit to the relevant institution. In addition, a hard credit pull inquiry will be performed, so the company you’re obtaining a secured credit card from will have an idea of where you stand with your current bank. Finally, you will receive a secured credit card in the post within the next 30 days – depending on the processing time of the institution you’re applying with.
Overall, it’s easy to gain approval for a secured credit card. It’s essential to plan before applying and make sure you save enough money to provide your creditor with the required security deposit.
Top Five Secured Credit Cards in Canada
If you’re searching for a credit card that will help you improve your credit score but struggle to gain approval due to a low credit score, a secured credit card is for you.
There are many factors to consider when choosing a card for you. Firstly, try considering if the company charges you a fee on top of the security deposit. Also, make sure to check out what interest rates are on offer. It’s always important to check your current bank or institution to see what secured credit cards they have on offer. Here is a list of five secured credit cards to help you begin your journey to a better credit score:
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Home Trust Secured Credit Card – No Fee*
- Annual fee: $0
- Interest rate: 19.99% purchases and cash advances
- Security deposit: $500 – $10,000
- Credit limit: $500 – $10,000
- How to apply: Apply for Home Trust No Fee Secured Credit Card here.
* Note: if you’re in a bankruptcy, you are not eligible to apply for this secured credit card.
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Home Trust Secured Credit Card – Low Interest*
- Annual fee: $59
- Interest rate: 14.9%
- Security deposit: Minimum $500
- Credit limit: Minimum $500
- How to apply: Apply for Home Trust Low-Interest Secured Credit Card here.
* Note: if you’re in a bankruptcy, you are not eligible to apply for this secured credit card.
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Canadian Imperial Bank Of Commerce (CIBC) Secured Credit Card*
- Annual fee: $29
- Interest rate: 19.9%
- Security deposit: Minimum $500
- Credit limit: Minimum $500
- How to apply: You must apply for this secured credit card in person in your local branch.
* Note: if you are in bankruptcy, you are not eligible to apply.
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Capital One Guaranteed Secured MasterCard
- Annual fee: $59
- Interest rate: 19.9%
- Security deposit: $75 Minimum
- Credit limit: $500 – $10,000
- How to apply: Apply online here.
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No-Fee Scotiabank Value Visa
- Annual fee: $0
- Interest rate: 16.99%
- Security deposit: Minimum $500
- Credit limit: Minimum $500
- How to apply: You must apply for this secured credit card in person in your local branch.
Secured Credit Cards and Your Bottom Line
Overall, a secured credit card is the perfect way to begin improving or establishing a credit score. Gaining approval for a secured credit card is generally easy and is the first step anyone should take to boost their score. A secured credit card has all of the same perks as an unsecured credit card – they allow you to withdraw cash from an atm or pay for goods or services online.
Most importantly, a secured credit card is your steppingstone to someday getting an unsecured credit card, obtaining a personal loan, a car loan or even a mortgage. A secured credit card allows you to build a credit history and achieve your ideal credit score.
