If you’re new to the world of credit cards, or you’re just looking for a better way to manage your money, a secured credit card might be the right choice for you. Secured cards are designed for people who are looking to rebuild or establish their credit history. But how do they work? And which one is the best option for you? In this article, we’ll explore everything you need to know about secured credit cards in Canada. We’ll outline the different types available, what to look for when choosing a card, and how to use it effectively. Lastly, we’ll cover our top 5 secured credit card picks. Read on to learn more.
Table of contents
- What is a secured credit card in Canada?
- What Canadian banks offer secured credit cards?
- Do secured credit cards really work?
- How to get a secured credit card in Canada
What is a secured credit card in Canada?
A secured credit card is a special type of revolving credit. The cardholder pays a cash deposit upfront to open the account. The credit limit for this type of card is equal to the amount deposited by the cardholder. For example, if someone deposits $500, their credit limit will be $500 as well.
The deposit protects the credit card company from loss if the holder of the secured credit card doesn’t pay their bills. This is why it’s usually easier to get a secured credit card than an unsecured one. They are ideal for people who have poor credit or no credit history. In addition, if you use it responsibly and always make timely full payments, a secured credit card can help improve your credit score. Once your score goes up enough, you’ll qualify for a traditional unsecured credit card that doesn’t require a deposit.
If you’re a responsible credit card holder, some secured credit card providers offer the ability to upgrade to an unsecured credit card. If that option isn’t available from your provider, you can always close your account and apply for an unsecured card with another company. In either case, as long as there are no outstanding payments on the account, the issuer will pay back your security deposit in full when you close the account.
Depending on the provider, minimum deposits for secured credit cards can be as little $50. While maximums don’t usually go above $10,000.
Related Reading: What is the Average Credit Score in Canada?
What is an unsecured credit card?
A credit card that does not require a security deposit as collateral is referred to as an unsecured card. This is the most popular form of credit card. If you already have a credit card, it’s likely the type you use. Secured credit cards in Canada, on the other hand, requires you to provide a refundable security deposit when you open an account.
When you apply for an unsecured card, the credit card provider will usually check your credit report, credit score, and information from your application, such as income and monthly housing costs. Your history with the company that issues the card might also be considered, if you’re already a customer.
When you charge something on an unsecured credit card, the amounts are added to your card’s balance. You can make purchases until your account hits its credit limit. Paying down the debt frees up additional credit for future uses. Thereby allowing you to borrow against your limit without having to apply for new credit.
Your card issuer will send you a statement at the end of your billing cycle which is usually a month long. You usually have a few weeks to pay your full balance, or a make a partial payment. You won’t pay any interest on your purchases if you pay the full amount of your statement balance on time every month. If you pay less than the complete sum, you may revolve your remaining balance from one month to the next and pay it off gradually.
If you need to finance a large or unexpected purchase, carrying a balance on your credit card and paying it off over time can be helpful. However, any unpaid portion of the balance that is carried over to the next billing cycle, as well as any new purchases made, will start accruing interest every day.
Related Reading: Credit Counselling: A Complete Guide
Do secured cards build credit in Canada?
Yes, a Canadian secured credit card can help build credit. But it’s important to understand how they work before you apply. Canadian secured credit cards are typically used by people who don’t have a credit score or history, but want to establish one. The Canada secured credit card issuer holds a deposit (usually equal to the credit limit) as collateral. This reduces the risk for the issuer and makes it easier to approve people for the card. In other words, the main requirement for a secured credit card is having a cash deposit readily available, not having a certain credit score.
In general, using a secured card responsibly can help improve your credit score over time. That means making on-time, full payments and keeping your balance low relative to your credit limit. If you effectively manage your secured credit card, your credit score will improve over time. Eventually, you’ll be eligible for an unsecured credit card.
Related Reading: How to Build Your Credit in Canada
How does a secured credit card work?
A secured credit card is a credit card that relies on a cash deposit from the user. This money acts as collateral for the account, giving the lender additional security in case the borrower defaults on payments. The amount you put down as a deposit will become your credit limit for your secured credit card.
Secured credit cards are frequently offered to subprime borrowers or people with bad or poor credit. Because the card issuer will report on secured credit cards to credit reporting agencies, these instruments can help consumers improve their scores.
If you fail to pay your secured credit card bill on time or in full, you risk losing your cash deposit. It could also do more harm to your credit score than good. If your goal with a secured credit card is to build credit, be sure to use it responsibly!
Related Reading: How To Improve Your Credit Score In Canada
What Canadian banks offer secured credit cards?
Applying for one of Canada’s best-secured credit cards is a great way to improve your credit score. Both big and alternative banks offer secured credit card products. Start by checking if your current bank has a secured credit card product. And if not, then research others to find the best secured credit card for you. Below are our top 5 picks.
Top 5 secured credit cards in Canada
|Secured Credit Card||Key Features||Rates & Fees|
|TD Cash Secured Credit Card||– 1% cash back on all eligible purchases|
– Security deposit between $300 and $5,000
– Opportunity to graduate to an unsecured card
|– $29 annual fee|
– 25.24% interest rate
– 27.49% interest on cash advances
|Home Trust Secured Visa||– Security deposit between $500 to $10,000|
– Not available in Quebec
|– $0 annual fee|
– 19.99% interest rate
– Option for 14.9% interest rate with $59 annual fee
|Refresh Financial Secured Card||– Security deposit between $200 and $10,000|
– No hard credit check required
|– $12.95 annual fee|
– $3 monthly fee
– 17.99% interest rate
|Capital One Guaranteed Secured Mastercard||– Security deposit of $75 or $300|
– Travel insurance included
|– $59 annual fee|
– 19.8% interest rate
– 21.9% interest on cash advances
|Plastk Secured Credit Card||– Cash back benefits (250 points = $1)|
– Use points for merchandise, travel, events, gift cards and more
– Sign up bonus of 5,000 points and 0% interest for 3 months
|– $48 annual fee|
– $6 monthly fee
– 17.99% interest rate
Related Reading: The Best Credit Cards in Canada
Do secured credit cards really work?
Secured credit cards are designed for individuals with damaged credit or those who are new to Canada and may not have an established credit history yet. If your goal is to improve your credit score or build credit history, yes secured credit cards really work. However, you get what you put into it. If you manage your secured credit card responsibly by keeping your debt at reasonable levels and always paying on time and in full, then your credit will improve over time. On the other hand, if you mismanage your secured credit card, it could do more damage than good. If your goal is to improve your credit, then always keep that in mind when using your secured credit card. Through dedication and patience, you’ll achieve your goal! Below are some pros and cons of secured credit cards to consider.
Pros and cons of secured credit cards in Canada
|Repair damaged or bad credit||Need to have cash handy for security deposit|
|Build credit history if you don’t any||Cannot access security deposit unless you cancel the card|
|Security deposit is not used by credit card provider, unless you default||Annual and monthly fees are common|
|Some secured credit cards come with rewards||Higher interest rates are common|
|Relaxed approval process and eligibility criteria||Upgrades are not guaranteed|
How to get a secured credit card in Canada
If you are new to Canada and have no credit history, or have a poor credit history, a secured credit card can help you get started on the right foot. Here’s how to get a secured credit card in Canada:
First, you’ll need to identify a few vendors that offer secured credit cards. Some banks, such as Home Trust and TD, offer secured cards to their clients. Once you’ve identified a few vendors, choose one that you like the most and begin your application.
Once you’ve chosen a vendor, you’ll need to prepare a deposit. The deposit is usually equal to the credit limit on the card, so if you want a limit of $500, you’ll need to make a deposit of $500. Choosing your deposit amount is definitely a personal preference based on your cash on hand and what expenses you intend to put on the card.
The final step is to fill out an application form and submit it, along with your deposit. Once your application is approved, you’ll receive your new secured credit card in the mail. Be sure to use it responsibly by always paying your bills on time and in full!
Who qualifies for a secured credit card?
A secured credit card is a type of credit card that is backed by a security deposit. The deposit acts as collateral and helps to mitigate risk for the issuer in the event of non-payment. As a result, people with bad or no credit can qualify for a secured credit card. However, people with good credit may want to use a secured credit card as well. Generally speaking, the eligibility criteria for a secured credit card is much more lax than other financial products.
To qualify for a secured credit card, you will need to provide evidence of your financial status and have a source of income. This is usually required when applying for any kind of financial product. The main requirement is providing a security deposit for the card. The size of the deposit will vary depending on the issuer, but it is always equal to the credit limit.
Read More: What is a Good Credit Score in Canada?