Secured credit cards are credit cards that require a deposit as collateral, which is used to secure the credit limit. The deposit acts as a guarantee for the issuer in case the cardholder is unable to make payments. They are designed for individuals with poor or limited credit history who want to build or improve their credit scores. The cardholder’s credit limit is usually equal to the amount of their deposit and the credit utilization and payment history are reported to the major credit bureaus, allowing the cardholder to improve their credit score over time.
Using a secured credit card responsibly by paying on time and keeping the credit utilization low can help improve a person’s credit score over time. This can make it easier to obtain unsecured credit cards or loans in the future. It’s important to remember that while a secured credit card can help establish or improve credit, using it irresponsibly by missing payments or maxing out the credit limit can have the opposite effect and harm a person’s credit score.
When choosing a secured credit card, it’s important to consider the fees and interest rates, as well as the reporting practices of the issuer. Some secured credit cards have annual fees, high interest rates, and may not report to all three major credit bureaus. It’s important to compare offers and read the terms and conditions carefully to ensure that the secured credit card chosen will help, rather than harm, a person’s credit score.
What Is A Secured Credit Card?
A secured credit card is a type of credit card that requires a security deposit to be held by the issuer as collateral. This deposit acts as a guarantee for the issuer in case the cardholder is unable to make payments. The credit limit on a secured credit card is typically equal to the amount of the security deposit.
Secured credit cards are designed for individuals with poor or limited credit history, and they provide a way to build or repair credit. Because the issuer holds a security deposit, they are less risky for the issuer and more likely to be approved by individuals with a low credit score.
Using a secured credit card responsibly, such as making payments on time and keeping the balance low, can help improve your credit score and demonstrate your creditworthiness to potential lenders. After a period of responsible use, some issuers may offer to convert a secured credit card to an unsecured credit card or return the security deposit.
Why Do You Need A Secured Credit Card?
A secured credit card may be necessary for individuals who have poor or limited credit history and are looking to establish or improve their credit score. The deposit required for a secured credit card acts as a guarantee for the issuer, reducing the risk of default and making it easier for individuals with poor credit to be approved for a credit card. Using a secured credit card responsibly by making payments on time and keeping credit utilization low can help build a positive credit history, which can lead to a higher credit score.
This, in turn, can make it easier to obtain unsecured credit cards or loans in the future with better terms and lower interest rates. Additionally, a secured credit card can also be useful for individuals who are working to recover from financial difficulties or who have limited access to traditional credit.
What Is A Bad Credit Score In Canada?
In Canada, the credit scoring model used by the majority of lenders is the Equifax credit score, which ranges from 300 to 900. A score below 600 is generally considered to be a bad credit score, making it more difficult to obtain credit such as loans or credit cards, and resulting in higher interest rates and lower credit limits.
Like in other countries, a bad credit score in Canada can be caused by a number of factors such as late or missed payments, high credit card balances, defaulting on a loan, or having a limited credit history. It’s important to check your credit report regularly and address any errors or negative items that may be affecting your credit score. Working to pay down debt, make payments on time, and avoid applying for new credit unnecessarily can help improve a person’s credit score over time.
What Are Some Of The best-secured credit cards in Canada?
Below is the list of some of the best-secured credit cards in Canada include:
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BMO Guaranteed Mastercard: This card offers a low annual fee and reports to both Equifax and TransUnion, making it a great option for building credit.
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Home Trust Secured Visa: This card has a low annual fee and a relatively high credit limit, making it a good choice for those looking to build credit.
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Capital One Guaranteed Mastercard: This card offers a high credit limit and reports to all three major credit bureaus, making it a good option for building credit.
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Scotiabank Secured Credit Card: This card offers a low annual fee and allows cardholders to choose their own credit limit, making it a flexible choice for building credit.
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National Bank Secured Credit Card: This card offers a low annual fee and the option to convert to an unsecured credit card after a year of responsible use.
BMO Guaranteed Mastercard
The BMO Guaranteed Mastercard is a secured credit card offered by the Bank of Montreal (BMO). It is designed for individuals with limited or no credit history, or for those looking to rebuild their credit. To be eligible for the BMO Guaranteed Mastercard, you need to be a Canadian resident and over the age of majority in your province or territory.
Features of the BMO Guaranteed Mastercard include a low annual fee, automatic credit limit increase, and reporting to both Equifax and TransUnion. The credit limit on the card is determined by the amount of the security deposit, which can range from $200 to $5,000.
Using the BMO Guaranteed Mastercard responsibly, such as making payments on time and keeping the balance low, can help improve your credit score and demonstrate your creditworthiness to potential lenders. The card also offers additional benefits such as extended warranty coverage, purchase protection, and zero liability for unauthorized transactions.
Home Trust Secured Visa
The Home Trust Secured Visa is a secured credit card offered by Home Trust Company. It is designed for individuals with limited or no credit history, or for those looking to rebuild their credit. To be eligible for the Home Trust Secured Visa, you need to be a Canadian resident and over the age of majority in your province or territory.
Features of the Home Trust Secured Visa include a low annual fee, flexible credit limit options, and reporting to both Equifax and TransUnion. The credit limit on the card is determined by the amount of the security deposit, which can range from $500 to $10,000.
Using the Home Trust Secured Visa responsibly, such as making payments on time and keeping the balance low, can help improve your credit score and demonstrate your creditworthiness to potential lenders. The card also offers additional benefits such as travel accident insurance, car rental collision and loss damage insurance, and 24/7 customer service.
Capital One Guaranteed Mastercard
The Capital One Guaranteed Mastercard is a secured credit card offered by Capital One Canada. It is designed for individuals with limited or no credit history, or for those looking to rebuild their credit. To be eligible for the Capital One Guaranteed Mastercard, you need to be a Canadian resident and over the age of majority in your province or territory.
Features of the Capital One Guaranteed Mastercard include a low annual fee, automatic credit limit increase, and reporting to both Equifax and TransUnion. The credit limit on the card is determined by the amount of the security deposit, which can range from $75 to $1,500.
Using the Capital One Guaranteed Mastercard responsibly, such as making payments on time and keeping the balance low, can help improve your credit score and demonstrate your creditworthiness to potential lenders. The card also offers additional benefits such as extended warranty coverage, travel accident insurance, and car rental collision and loss damage insurance.
Scotiabank Secured Credit Card
The Scotiabank Secured Credit Card is a secured credit card offered by Scotiabank. It is designed for individuals with limited or no credit history, or for those looking to rebuild their credit. To be eligible for the Scotiabank Secured Credit Card, you need to be a Canadian resident and over the age of majority in your province or territory.
Features of the Scotiabank Secured Credit Card include a low annual fee, automatic credit limit increase, and reporting to both Equifax and TransUnion. The credit limit on the card is determined by the amount of the security deposit, which can range from $500 to $10,000.
Using the Scotiabank Secured Credit Card responsibly, such as making payments on time and keeping the balance low, can help improve your credit score and demonstrate your creditworthiness to potential lenders. The card also offers additional benefits such as 24/7 customer service, travel accident insurance, and car rental collision and loss damage insurance.
National Bank Secured Credit Card
The National Bank Secured Credit Card is a secured credit card offered by National Bank of Canada. It is designed for individuals with limited or no credit history, or for those looking to rebuild their credit. To be eligible for the National Bank Secured Credit Card, you need to be a Canadian resident and over the age of majority in your province or territory.
Features of the National Bank Secured Credit Card include a low annual fee, automatic credit limit increase, and reporting to both Equifax and TransUnion. The credit limit on the card is determined by the amount of the security deposit, which can range from $500 to $10,000.
Using the National Bank Secured Credit Card responsibly, such as making payments on time and keeping the balance low, can help improve your credit score and demonstrate your creditworthiness to potential lenders. The card also offers additional benefits such as 24/7 customer service, travel accident insurance, and car rental collision and loss damage insurance.
Final Words
In conclusion, secured credit cards can be a useful tool for building or repairing credit. It’s important to carefully compare the features and eligibility of different cards to find the best option for your individual needs. Additionally, responsible use of a secured credit card, such as making payments on time and keeping the balance low, can help improve your credit score over time.
It’s important to remember that a secured credit card is still a credit card, and using it irresponsibly can still lead to debt and harm your credit score. Before applying for a secured credit card, it’s a good idea to review your budget and determine how much you can afford to put down as a security deposit. This deposit is typically held by the issuer in case of default and will be refunded if the card is closed in good standing.
Finally, it’s important to regularly check your credit report to monitor your progress and ensure that the issuer is reporting your activity accurately. This can help you identify and address any errors or negative items that may be affecting your credit score. By using a secured credit card responsibly and monitoring your credit, you can take control of your financial future and work towards a better credit score.