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Rebuilding Credit with Secured Credit Cards

If mishandled, credit cards can be trouble. They can lead to overspending and debt accumulation. However, if used responsibly, credit cards can help you build a good credit profile from scratch or rebuild credit that has been damaged.

Secured credit cards offer a safe way to either start using credit or to get back into credit card use after experiencing a misstep. You can be approved for a secured credit card even if you have no credit or less than perfect credit. Also, with this type of credit line, you will be less at risk to acquire a lot of debt.

How Secured Credit Cards Work

Secure Credit Cards

It is fairly simple to acquire a secured credit card. In fact, it is similar to opening a bank account. But after the card is issued, it functions just like a "regular" (unsecured) credit card.

  • Choose a card to apply for. There are a number of secured credit cards available. Search online for the best offers and make sure to read the terms and conditions carefully. It is also helpful to read customer reviews.
  • Put down a cash deposit. In order to open a secured card, you will be required to put a certain amount of your own money (usually $300-$500) into an account. The amount of this deposit will become your spending limit.
  • Use the card to make purchases. You will be able to use the card online and everywhere that accepts credit card payments. Try to keep your balance at or below 30% of your spending limit.
  • Make your payments. This is the most important part. In order to improve your credit score, you will need to make all of your payments on time. After you have made timely payments for several months, your issuer may allow you to transition over to an unsecured credit card with a higher spending limit.

Over time and with responsible use, a secured credit card can help you earn a better credit score. It is important to keep up with all of your other bills too. Also, credit lines count as revolving credit. Future lenders will want to see these types of accounts on your credit history. You will also need at least one example of installment credit on your account, such as a car loan.

Recommended Secured Credit Cards

Designed to help Canadians establish or re-establish their credit, these cards come with no or low annual fees. Different versions of these cards are available, so make sure to select the one that best fits your situation.

  • Home Trust Secured Visa Card:
    This card comes with a 14.90%-19.99% APR. There is no annual fee except with the 14.90% rate version, which costs $59 per year. Account information is reported to both Equifax and TransUnion each month, and a deposit of $500-$10,000 is required. As with every secured credit card, the amount that you choose to deposit will become your spending limit.
  • BMO Preferred Rate MasterCard:
    This card features free extended warranty and purchase protection and comes with a 17.5% APR. A minimum deposit of $300 is required, and the over-limit fee is $29. A $40 penalty will be charged for a dishonoured payment. There is, however, no annual fee.
  • No-Fee Scotiabank Value Visa Card:
    Opening this card requires a $500 security deposit and comes with no annual fee. Cardholders pay an APR of 16.99%, but also qualify for Visa Perks discounts. If a cardholder goes over their limit, they are charged a fee of $25. There is a $42.50 penalty attached to dishonoured payments.
  • RBC Visa Classic Low Rate:
    There is an annual fee of $20 that comes with opening this card, but it also offers a fairly low 11.99% APR. The amount of the security deposit that you choose to put down (at least $300) will earn interest with a Guaranteed Investment Certificate (GIC) account. These cards are ineligible for balance transfers and introductory rates.

If one of these secured credit cards seems like it would fit your needs and budget, check online for the issuer's most current rates and terms.

Rebuilding Credit with a Car Loan

As mentioned before, a car loan is a good example of installment credit. If you finance your next vehicle purchase, you will have an opportunity to improve your credit rating by making timely payments. Of course, you may not be able to get approved for an auto loan with just any lender if your credit is tarnished.

Luckily, Canada Auto Loan can help. If you have less than perfect credit, we can match you with a local dealership that is connected to the kinds of lenders that are able to approve buyers who are dealing with unique credit situations. Our service costs nothing and you will be placed under no obligation to buy anything. Go ahead and fill out our simple and secure online application to get started today.