Shop Canada's Best Secured Credit Cards
Secured Credit Cards
If you’re in a rough spot with your credit and need a booster, or have no credit history to speak of, secured credit cards will help you police your credit activity. Using a secured credit card is the easiest way to improve your credit score, though getting one is not as simple as it used to be. Some financial institutions have discontinued them all together. However, there are great ones out there that you can access as you start building credit and practicing responsible financial habits.
What Is a Secured Credit Card and What Are Its Benefits?
A secured credit card is a card that includes a security deposit (usually $500) that serves as your initial credit limit. Whenever you fail to make a payment, your credit card issuer can take your deposit. However, your deposit is refundable should you decide to close it. These cards are available from small and large banks as well as credit unions. Furthermore, if you're a college student or recent Canadian immigrant, secured credit cards are great for building your credit.
To build credit using a secured credit card, you should use small portions of your available credit. Low credit utilization rates will improve your credit score. They make the payment process easier for you as you can make them on-time with little risk or pressure. Payment history is a strong credit score indicator as late payments can impact it in the most negative ways possible. If past financial problems continue affecting you, secured credit cards offer you an opportunity to rebuild your credit. Eligibility for these cards is more open than most, and you must be of legal age to qualify.
No credit check is needed, so you won’t have to worry about an extensive inquiry once you apply for the card. Plus, you can choose a secured card that has a grace period, affording you more time to clear your balance. Grace periods often last up to 25 days after your account has been charged, applying to bank transfers and purchases. Without that grace period, you will owe interest on every purchase, making it harder to improve your credit history. There are no grace periods given for cash advances and special bank transfers, however.
Secured credit cards are also accepted worldwide, and some secured cards don't come with an annual fee. You can even get better rates on car loans or boost your ability to rent a place by responsibly using a secured card.
How Do Secured Credit Cards Work?
Secured and unsecured cards differ in the sense that the former requires a deposit or security funds to guarantee on-time payment. Those security funds are needed because financial institutions are taking on high-risk borrowers who are more prone to default.
If you're a student, this card allows you to develop disciplined spending habits right away. You can get one if you are under 18 too, but you'll need a co-signer for that. Co-signing makes it more possible for you to get a card, though your parent or guardian has put their name on the line for you. Make sure to spend carefully and pay debts on time.
Unsecured credit cards, in comparison, for people with low credit scores, can cost hundreds more in fees compared to those with secured cards. Though your credit limit for a secured credit card is low, using it on everyday purchases puts you in a great position to obtain unsecured cards with higher limits. When you're applying for a secured credit card, you will be asked about estimated monthly payments, including loans and lines of credit. You'll also be asked if you have any income source and any proof of income as well as being asked to provide a permanent address.
Secured cards come with varying interest rates like most other cards, with some percentages in the lower teens, while others verge on the 20% mark. Some credit card issuers offer free money management courses online to help you make better financial decisions. Others offer optional travel insurance as well as discounts on select services, so you can improve your credit and get perks at the same time.
Who Should Get a Secured Credit Card?
People who have trouble saving money or paying off debt should look at a secured credit card as his or her bail out. If you have difficulty saving money for emergency purposes, let alone for the deposit needed to obtain the card, it isn't wise to get one.
Secured credit cards allow you to get credit before it becomes urgent to do so. You can make yourself more desirable to employers with this card as good credit scores will help them trust your financial decision-making more. You can also earn interest on your deposit as some secured credit cards place your deposit in an interest-bearing savings account. You could earn money back depending on the interest rate as well as how long your deposit stays in the account.
Payments are often reported to major credit bureaus. Before signing for a secured card, check whether or not your lender reports to a credential credit bureau. The timeliness of credit reports combined with the issuer’s reporting practices determines the time it will take for your card to appear on your credit file.
Strong credit practices could prompt the bank issuing your card to reward you for your diligence by adding to your credit line without demanding another deposit. Avoid an application fee at all costs and be sure to clarify what the minimum payment for the card is. These cards are meant to prepare you for an unsecured card down the line. If you've shown you can pay off your secured card with consistency and even garner benefits from it, then you can qualify for an unsecured card within a year. You've got to crawl before you can walk after all.
Get your credit history off to the best start by comparing and contrasting the top secured credit cards nationwide at shoptherate.ca and apply now!