In Canada, using a credit card for our purchases is quite popular and many of us rely on this payment method daily. For many Canadians, being approved for a credit card isn’t an easy feat and a number of cardholders need to apply for a secured credit card. Secured credit cards require an initial cash deposit to be held as collateral and the value of the deposit typically equals the amount of available credit.
Getting a secured credit can be a good option as many are offered with low interest rates and no annual fees attached. For example, if a consumer deposits $1,000 into a secured credit card, this will be the credit limit for the card. If the bank sees that the credit card user is paying off their bill quickly, they may increase the card limit. 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.
You may be wondering why individuals may get a secured credit card versus a regular one. Well, most of the time it’s down to having a poor credit score or lack of credit altogether. If bad credit history exists, banks are less likely to take the risk of issuing a credit card to that consumer for fear that they won’t pay. In Canada, having access to a credit card can be a much more convenient method of payment as many purchases require a credit card. If you aren’t able to get approval for a regular one, at least a secured credit card can provide you with this convenience. It can also help you build up your credit score which can help you secure more credit in the future.
A secured credit card also functions much the same as a standard credit card as it requires that monthly minimum payments be made on the card and if the full amount can be paid 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.
Although many people may look at a secured credit card as a secondary option, it can help individuals gain access to a credit card and can help to build healthier habits with credit over time. When comparing the different secured credit cards in Canada, it’s important to not only look at the overall fees for obtaining the card but also look at the flexibility of the card to be changed to a standard credit card over the long-term. 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.
Let’s take a look at three Canadian secured credit cards to see how they compare and how you may benefit from them:
Top Pick – Secured Credit Card #1 – Home Trust Secured Visa Card
This secured Canadian credit is designed to suit individuals who are looking to rebuild or establish their credit rating. Virtually everyone is approved for this card and the secured card requires funds as a deposit. Additionally, this card enables the user to access cash anytime, from over 1 million ATMs around the world.
In order to be eligible for the Home Trust Secured Visa Card, you need to have a security deposit. Your credit limit is then set at the amount of the deposit. You can put down as little as $500, or as much as $10,000. When cancelling the card, you just pay off your outstanding balance, and you’ll get your security deposit back from Home Trust. Home Trust prides itself on operating a simplistic application process and they state that if your application is not approved, your security deposit will be immediately returned.
Some specifics include –
- Interest rate: 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 (We like $2,000 as a good starting point)
- If you cancel and pay off your balance you will receive your deposit back
Runner Up – Secured Credit Card #2 – RBC Cash Back MasterCard
This rewards card charges no annual fee and secured cardholders earn 2% in cash back credits for every $100 spent on grocery store purchases, or 1% for other purchases. After one year, if you’ve spent $600 every month on groceries, you will have earned $144 in cash credits.
RBC places your security deposit into a 12-month Guaranteed Investment Certificate (GIC), where it earns interest for you as you build your credit history. The interest you can earn teamed with the cash back rewards enables you to maximize the money are making on your security deposit and purchases. You cannot access the security deposit until after the 12-month GIC period expires.
RBC Cash Back MasterCard also features a 90-day purchase security benefit that covers loss or accidental damages to items bought with the card, as well as up to one year in extended warranty insurance.
Some specifics include –
- Interest rate: 19.99% APR
- $500 minimum deposit
- Deposit is held for 12 months before it can be accessed
Honourable Mention – Secured Credit Card #3 – TD Emerald Visa Card
This card requires a minimum $1,000 security deposit which is held by the bank for up to three years. The primary feature of the TD Emerald Visa Card is that it offers cardholders a low interest rate. The interest rate is based on TDs prime rate which is currently at 3%. If this does increase in the future, the APR could also rise.
Some specifics include –
- Interest rate: 12.75% APR
- $1,000 minimum deposit
- Minimal annual fee of $25
With a number of Canadians needing to rebuild their credit while enjoying the convenience of using credit cards for common purchases, secured credit cards are a popular choice these days. There are a range of secured cards available in Canada with the above three being only a taste of what’s out there. Finding the right secured credit card for you is all about knowing what’s most important to you and what options are available.