Building Your Credit Using Secured Credit Cards

Building your credit can be difficult, especially if you’re new to Canada or have previous negative remarks on your credit report like a bankruptcy. When you have a bad or no credit history, gaining access to different credit products can be extremely difficult and expensive. If you’re looking to build credit, a secured card can help.

Best Credit Building Secured Credit Cards

	Annual Fee	Interest Rates	Min. Deposit
Refresh Financial Secured Visa	$12.95	17.99%	$200
Plastk Secured Visa Credit Card	$48 (+$6 monthly fee)	17.99%	$300
Home Trust Secured Visa Card	0$ or $59	- 19.99% (no annual fee) - 14.9% (with annual fee)	$500
Vancity enviro Secured Visa Card	$0 - $395	- 11.25% - 19.50 %	$500
TD Secured Credit Card	$29	19.9%	$500
Capital One Guaranteed Secured Mastercard	$59	19.8%	$75

How To Build Credit Using A Secured Credit Card?

A secured credit card helps you build credit like any other credit product. Here are some tips on how to use your secured credit card to build credit:

Establish A Payment History – Don’t simply have your secured credit card tucked away, use it sparingly each month to build up your payment history.
Pay On-Time – Be sure to make your payments on time. Like a missed payment, late payments can also affect your credit negatively. Similarly, every on-time or early payment can help improve your credit scores.
Pay The Whole Balance – Whenever possible pay off the entire balance rather than the minimum payment. Paying your whole balance will help keep your credit utilization ratio low, which can also help improve your credit scores.

Credit Reporting And Secured Credit Cards

The main goal of using a secured credit card is to build your credit scores. In order to accomplish this, you need to ensure that your lender reports to the major credit bureaus. Failing to do so will result in you not getting the results you need to move on with your finances. It is important to ensure that your secured credit card helps you work towards your personal financial goals.

Requirements For A Secured Credit Card

Requirements for a secured credit card are fairly minimal. Most creditors will approve you, so long as you are able to provide the minimum security deposit. Since you’re security deposits acts as collateral, these creditors generally don’t have any credit or income requirements, making it very easy to qualify for. However, that doesn’t mean that no creditors will check your credit and income.

How Do You Apply For A Secured Credit Card?

In order to apply for a secured credit card, you may need to provide certain information and documents during the application, such as:

Personal Information: When applying you’ll have to provide basic personal information such as your name, address, phone number, social insurance number and more.
Financial Information: Many secured credit card providers often require you to provide pay stubs or bank statements as proof of income.

Depending on the provider, there may be age restrictions, as well as other company-specific requirements.

Do The Big Banks Of Canada Offer Secured Credit Cards

Do RBC secured credit cards Exist? – Currently, RBC does not offer any secured credit cards.
Do TD secured credit cards Exist? – Yes, TD offers two secured credit cards called the Home Trust Secured Visa Card and the TD Secured Credit Card.
Do BMO secured credit cards Exist? – Like most of the big 5 banks, BMO also does not offer any secured credit cards.
Do CIBC secured credit cards Exist? – CIBC does not offer any secured credit cards, however, they do have some programs and credit cards that are specifically designed for students and newcomers.
Do Scotiabank secured credit cards Exist? – No, Scotiabank doesn’t offer a secured credit card, however, it does have a credit card with very low requirements called the No-Fee Scotiabank Value Visa. This card simply requires you have an income of $12,000/annually.

Benefits Of A Secured Credit Card

While an unsecured credit card is the goal of most individuals, there are still some benefits to a secured credit card.

Helps Build Credit – The main benefit of using a secured credit card is that it can help you establish stronger credit scores.
Helps You Qualify For Regular Credit Cards – A secured credit card can help you qualify for an unsecured credit card as well as other credit products.
Easy To Qualify – Whether you’ve had bad credit or have declared bankruptcy in the past, you can still qualify for a secured credit card.

Drawbacks Of A Secured Credit Card

Just as there are benefits, there are also drawbacks to secured credit cards including:

Fees – A secured credit card still charges common fees that you would expect to have on unsecured credit cards. In fact, fees for secured credit cards are often higher. In some cases, lenders require monthly insurance fees, on top of your security deposit.
Credit limit/security deposit – Credit limits are usually low as your credit limit is usually determined by your deposit. If you’re only able to offer $500 as a security deposit, then your credit limit will be $500.
Interest rate – You will also be charged an APR (annual percentage rate) for balances you carry forward. You will want to ensure that your APR is low if you plan on having forward-carrying balances on your record so that your interest payments are low as well.
No points system – Unlike a regular credit card, most secured cards don’t have a points or rewards system. You also don’t get any perks that many premium credit cards have such as travel insurance.

Additional Reading

What Is A Secured Credit Card?

A secured credit card in many ways works just like a standard credit card provided to you by a bank or lender with one major difference: the secured credit card is only provided in return for a monetary deposit used as collateral. For this reason, a secured credit card is available to a much larger subset of the population. A secured credit card can be obtained if the applicant has a bad credit rating and also in the event that the applicant has no credit history at all. A secured credit card works as an effective way to build (or rebuild) your credit for a brighter financial future.

Secured Credit Cards FAQs

How fast can you build credit with a secured credit card?

The time it takes to build credit using a secured credit card will vary from person to person. If you’re new to credit, it can take up to six months before either credit bureau is able to generate a credit score for you. The time it takes to build credit can also be affected by how bad your current credit profile is and how responsibly you’re using your secured credit card and other credit products.

Who are secured cards best suited for?

Secured credit cards are best for people with no credit score like students, young people, and immigrants. They are also a great option for those with a poor credit history that need to rebuild their credit score or for anybody that has filed for bankruptcy.

How much do you have to deposit as security for a secured credit card?

There’s no definite answer to this question. Often, the required deposit is between $300 and $500, however, some may allow deposits as low as $50. A lender will usually set minimum and maximum limits for your deposit.

Why do I need to provide a security deposit?

A security deposit is one of the main requirements for a secured credit card as it is used in the case that you default on your payments.

Bottom Line

A secured credit card can be advantageous to those with no or poor credit. While it may take a while to build your credit, if you are patient and diligent with paying your secured credit card, you’ll soon be able to access regular credit products. In most cases, it can take a little less than a year for you to transition from a secured credit card to an unsecured credit card.

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Priyanka Correia

Priyanka is a personal finance expert at Loans Canada. She is passionate about money management and educating Canadian consumers about how to take control of their financial lives. She has taken financial control of her life by using Mint to budget and track her expenses while growing her wealth by investing through Wealthsimple. She also believes in having an emergency fund, so she keeps a good sum of money in an easily accessible high-interest savings account. She also uses the American Express Cobalt Card to earn points on all her purchases, further fueling her savings goal. She also uses Loans Canada’s lender directory whenever she wants to compare rates from different lenders.