A bad credit score can make it difficult to qualify for loans, mortgages, and even rent an apartment. If you’re looking to rebuild your credit or establish credit for the first time, a secured credit card can be a valuable tool. Secured credit cards work differently from traditional credit cards by requiring a security deposit (collateral) upfront. This deposit acts as a safety net for the lender in case you default on your payments.
This article explores the best-secured credit cards in Canada for April 2024, helping you choose the right card to meet your needs and build a strong credit history.
Secured vs. Unsecured Credit Cards
Understanding the difference between secured and unsecured credit cards is crucial before applying.
- Secured Credit Cards:
- Easier to qualify for, even with a bad or no credit history.
- Require a security deposit (usually $200-$500) that becomes your credit limit.
- Ideal for building or rebuilding credit.
- Unsecured Credit Cards:
- Typically requires a good to excellent credit score (660 or above).
- No security deposit is required.
- Often comes with rewards programs and additional perks.
Top Secured Credit Cards in Canada
Here’s a breakdown of some of the best secured credit cards available in Canada:
- Neo Financial Secured Mastercard
- Unique Selling Points:
- No annual fee.
- Cash back rewards program (up to 5% on purchases at participating Neo partners, 1% on everything else).
- Minimum security deposit of only $50.
- Potential for credit limit increases.
- Free app and virtual card.
- Drawbacks:
- Interest rates can be high (19.99% – 29.99% on purchases).
- Unique Selling Points:
- KOHO Prepaid Mastercard (with Credit Building Add-On)
- Home Trust Secured Visa (No Fee)
- Unique Selling Points:
- No annual fee.
- High approval rate (over 95%).
- Security deposit matches credit limit ($500 – $10,000).
- Drawbacks:
- Relatively high-interest rate (19.99% on purchases and cash advances).
- Unique Selling Points:
- Home Trust Secured Visa ($59 Annual Fee)
- Unique Selling Points:
- Lower interest rate than the no-fee version (14.90% on purchases).
- High approval rate (over 95%).
- Security deposit matches credit limit ($500 – $10,000).
- Potential for credit limit increases.
- Drawbacks:
- Annual fee of $59.
- Unique Selling Points:
- Capital One Guaranteed Secured Mastercard
- Unique Selling Points:
- Easy to qualify for, even with bad credit.
- Security deposit becomes your credit limit ($75 – $300).
- The potential for credit limit increases up to $2,500.
- Drawbacks:
- Annual fee of $59.
- Relatively high interest rate (19.80% purchase APR).
- Scotiabank Value Visa (for fair credit or newcomers to Canada)
- Unique Selling Points:
- Lower interest rate than most secured cards (12.99% on purchases).
- 0% promotional balance transfer rate for 6 months.
- Up to 25% discount on car rentals at Avis or Budget.
- Drawbacks:
- Not a secured credit card (requires fair or better credit score).
- Annual fee of $29.
- Unique Selling Points:
- Unique Selling Points:
- Reloadable prepaid card.
- Low security deposit requirement ($30 – $500).
- Credit building add-on reports repayments to credit bureaus, potentially improving your credit score.
- Up to 5% cash back on purchases.
- 0% APR cash advances of up to $250 (with specific account setup).
- Drawbacks:
- Monthly fees for the Credit Building product ($5 – $10).
- Not a true credit card (doesn’t build credit history unless using the credit building add-on).
Choosing the Right Secured Credit Card
Several factors come into play when selecting the best-secured credit card for you:
- Credit Score: If you have a poor credit score, consider cards with easier approval processes, like the Capital One Guaranteed Secured Mastercard or the Neo Financial Secured Mastercard.
- Security Deposit: Consider how much you’re comfortable putting down as a security deposit. The Neo Financial Secured Mastercard allows you to start with as little as $50, while others require a minimum of $300 or $500.
- Annual Fees: Some secured cards, like the Neo Financial Secured Mastercard and the Home Trust Secured Visa (No Fee), have no annual fees. Others, like the Capital One Guaranteed Secured Mastercard and the Home Trust Secured Visa ($59 Annual Fee), charge an annual fee. Weigh the benefits of the card against the annual fee before applying.
- Interest Rates: Secured credit cards typically come with higher interest rates than unsecured cards. However, some cards, like the Home Trust Secured Visa ($59 Annual Fee), offer lower interest rates than others.
- Rewards Programs: Not all secured credit cards offer rewards programs. However, cards like the Neo Financial Secured Mastercard and the KOHO Prepaid Mastercard (with Credit Building Add-On) provide cash-back rewards, incentivizing responsible credit card use.
Secured Credit Card Tips for Building Credit
- Make Payments on Time: This is the single most important factor in building your credit score. Pay your balance in full and on time each month to demonstrate responsible credit use.
- Keep Your Credit Utilization Ratio Low: This ratio represents the amount of credit you’re using compared to your total credit limit. Aim to keep your utilization ratio below 30% for optimal credit score improvement.
- Don’t Max Out Your Credit Limit: Even if you can afford to pay your balance in full, avoid maxing out your credit card. This can negatively impact your credit score.
- Monitor Your Credit Report: Regularly check your credit report for errors or inaccuracies. You can access your credit report for free twice a year from Equifax and TransUnion, Canada’s two major credit bureaus.