Choosing A Secured Credit Card As A Solution To Credit Issues
In this day and age, many Canadian consumers rely on credit cards when making a variety of purchases. While having access to a credit card can be a more convenient method of payment, credit card users need to be responsible spenders, in order to achieve a good credit score. Having good credit can make individuals appear more mortgage and loan worthy to financial institutions. In turn, If a bad credit history exists, banks are less likely to lend borrows the funds they require, such as a credit card.
There are, however some credit cards available to those borrowers who have bad history and are not eligible for further selection of the traditional credit card option. A secure credit card is a card that can benefit those that are beginning to borrow credit and develop a credit history of their own as well as regain a good credit score.
It may be worth first applying to a card where no security is needed, one such exists, details below.
Many card issuers offer secured credit cards with low interest rates and no annual fees attached and this way an individual has the opportunity to move back into the good credit history range. These cards require an initial cash deposit to be held as collateral and the value of the deposit typically equals the amount of available credit. This means if a borrow pays a deposit of $300, then this will be the credit limit for the card. The average limit for secured cards generally fall within the $300 – $500 range, and sometimes the bank will increase the card limit, if the borrower has demonstrated the ability to keep up with the payments, overtime.
- Deposit of $300-500
- Credit limit of $300-500 – gradually increased as credit score rises with payments
Functioning much the same as a standard credit card, the secure credit card option requires that monthly minimum payments be made on the card and if the full amount can be payed off completely, then interest charges can be avoided. Similarly, if payments are not made on time or the borrower surpasses their limits, they will be charged additional fees as a penalty.
The security deposit used in the initial set up process is held as a method for covering the credit balance, in instances where borrowers cannot make the required payments. Collection agencies will not contact the borrower looking for any money however the card issuer will keep the deposit amount.
- Collection agencies will never hassle you
Although some similarities exist between secured credit cards and prepaid cards, secure cards have a credit limit and prepaid cards can be unlimited, depending on how much money is reloaded onto the card by the individual. As a result, secure cards may be a better option for borrowers with bad credit because they are more likely to regain a better credit score not only due to the secure limit, but also because card payment activity is often followed by Canadian Credit Bureaus and credit histories can be tracked.
- Secured Credit Cards offer a chance to improve your credit score
- Prepaid Credit Cards do not build credit score
Just as with all credit cards, there are various considerations, which a borrower should look into before applying for a Secure Credit Card. Higher fees are often associated to Secure Cards, which can include annual, application, monthly, and fees for credit limit increases. Additionally, users of this card type are not often permitted to withdraw funds from the account. This is to ensure the credit limit is not exceeded and balances can be covered, if individuals default on their payments. For borrowers who cannot find the money for the deposit, this may not be the best card choice. However, if paying the security deposit is possible, potential secured card users will have a better chance of being approved for this card versus many other standard card options.
- Application Fee of $35 May Apply
For individuals who require a credit card, but have a bad credit history or lack of any credit history, the following Secure Credit Cards may be an effective solution.
Secured Credit Cards without Annual Fees
Home Trust Secured Visa Card
This Secured Visa credit card is designed to help Canadians establish or re-establish their credit. The difference between this card and a regular credit card is the deposit that needs to be placed to obtain the card. All payment history and account information is reported, on a monthly basis, to both Equifax and TransUnion. With this card you can shop online, over the telephone and access cash at anytime, anywhere from over 1 million ATMs around the world displaying the VISA logo. Virtually everyone is approved.
- 14.90-19.99% APR
- No Annual Fee (%14.90 rate version has a $59 fee)
- Credit limit is set to your deposit – $500-$10,000
- If you cancel and pay off your balance you will receive your deposit back
Home Trust Visa Low Rate Option – APPLY No Fee Option – APPLY Interest rate on purchases 14.90% 19.99% Annual fee for applicant $59 Annually or $5 Monthly $0 Annual fee for co-applicant $24 annually or $2 monthly $0 Cash advances 19.80% 19.99% Minimum credit limit $500 Maximum credit limit $10,000 Interest-free grace period 21 days Minimum Payment 3% of the balance or $10, whichever is greater Foreign Currency Conversion 2% NSF Fee $45 Over limit fee $29 Application Links APPLY HERE for Low Rate Option APPLY HERE for No Fee Option
No-Fee Scotiabank Value VISA Card
This card requires a minimum $500 security deposit for a corresponding credit maximum. Cardholders pay an APR of 16.99% and qualify for VISA Perks discounts. Note: if a cardholder goes over their limit they will be charged a fee of $25 plus a $42.50 penalty, based on the dishonoured payment.
- $500 Deposit for $500 Credit Limit
- 16.99% APR with contingencies
- $67.50 fee if you go over your limit
- No Annual Fee
BMO Preferred Rate MasterCard
This is a secured version of BMO’s standard credit card with a 17.5% APR. The card features free extended warranty and purchase protection. Note: this card also charges a $29 over-limit fee and a $40 dishonoured payment charge.
When researching secured credit card options, individuals are strongly encouraged to examine all of the applicable card details in order to make the most informed decision and arrive at the best outcome that fits their individual needs.
- 17.5% APR
- Extended warranty and purchase protection
- $69 fee if you go over your limit
- No Annual Fee
Secured Credit Cards with Low Average Percentage Rates (APRs)
RBC Visa Classic Low Rate
This card has an annual fee of $20 and the security deposit earns interest with a Guaranteed Investment Certificate (GIC) account. Cardholders will pay an APR of 11.99%. Note: These cards are ineligible for certain promotions including, balance transfers and introductory rates.
- 11.99% APR
- Deposit earns a low rate of interest in a GIC
- Is not eligible for balance transfers or introductory rates
TD Emerald Visa Card
This card requires a minimum of $1,000 in collateral (held by the Bank for up to 3 years). Cardholders will pay an APR of 12.75%, based on TDs prime rate which is currently at 3%. Note: If the prime rate increases, the APR will also rise.
- 12.75% APR
- APR based on prime rate – When interest rates rise so will the APR
- $1,000 minimum deposit
- Deposit is held for 3 years by TD
Ultimately, secured credit cards can be a good choice and are often the only option for people who are looking to rebuild their credit score. Individuals, who are starting out with little to no credit history, can also look to this credit card option for assistance.