Do you have a bad credit score or you don’t have any credit history? Well, both these factors reduce your odds of getting approval for a regular credit card. However, you don’t need to worry! You have an option to improve your credit score or build it from scratch by applying for a secured credit card.
What is a secured card? How it is different from a regular credit card? What are its advantages? We’ll answer these questions and many such questions in this post. So, read on!
Secured Credit Card: Complete guide
Let’s understand more about secured credit card and its uses in detail:
What is a secured credit card?
As the name suggests, a secured credit card is backed by a security deposit that is made by the cardholder prior to its issue. It’s identical to a loan with collateral. The applicant is expected to deposit an amount equivalent to or twice the credit limit. For instance, if you want to apply for a secured credit card with a $2000 limit, you’ll have to deposit $2000-4000.
This security deposit is refundable and it is held in a savings account. Basically, the security deposit protects the lender in case of default payments.
Benefits of using a secured credit card
A secured credit card is suitable for borrowers who have destroyed credit scores. With the help of this credit card, you can repair your score and then apply for a regular credit card or loan. You make several transactions from the credit card and repay the money in monthly installment to build a good credit history. Furthermore, a secured credit card is also suitable for students who don’t have a credit history. You can use this credit card to build your credit history from scratch so that you become eligible for a standard credit card. For the immigrants in Canada, it is the only legit option available to establish their credit ratings.
When a cardholder makes any transaction and pays the balance each month, the card issuer records all credit activities and reports them to the credit bureau. Hence, your credit score will surely rise in case of complete and on-time payments. A secured credit card will exemplify you as a responsible borrower.
Disadvantages of using a secured credit card
Undoubtedly, a secured credit card is a great instrument to build or repair your credit score. However, there are some of its downfalls. You should be aware of them before you apply for a secured credit card. The biggest disadvantage of the secured credit card is that you’ll have to pay a high rate of interest that may even go above 20%. It is much higher than the rate of interest payable in case of a non-secured credit card.
Next, as you already must be aware that you have to give a security deposit equivalent to 100-200% of the credit limit. Though the deposit is refundable, you cannot access or use it till the time you own a secured credit card. Furthermore, you may even fall prey to lenders who charge roughly around 3-5% of the credit limit as a setup fee.
Where does the security deposit goes and when you can get it back?
The security deposit for a secured credit card is kept in a savings account and isn’t accessible till the time you hold the secured credit card. However, you’ll get a guaranteed investment certificate declaring that you can collect interest for the deposit once it is refunded to you. You get back your security deposit after your credit improves and you qualify for a regular credit card. In such a case, you’d no longer need a secured credit card. So, you can return it and take your secured deposit along with the interest earned on it.
When can you become eligible for a regular credit card?
Well, there isn’t a fixed answer to this question. However, if you’ll use the secured credit card properly and responsibly, there are chances you’ll become eligible for an unsecured credit card within 12 to 18 months. Furthermore, your past credit history and your lender perspective regarding you as a borrower also play a decisive role.
Best secured credit cards
If you’ve made your mind to apply for a secured debit card, then you must be searching for the best-secured credit card in Canada. You don’t need to search any longer as we’ve curated a list of top secured credit cards that even have a high approval rate.
1. Home Trust Secured no-fee Visa
If you looking for a secured credit card that you can get at a minimum annual fee and with guaranteed approval, then you should choose Home Trust Secured no-fee Visa. It is a secured credit card for Canadians that comes with zero annual fees and over 95% approval rate. Except for the case of bankruptcy, you’ll definitely get this credit card without any hassles.
- The annual fees is zero
- Credit limit offered is from $500 to $10,000
- The rate of interest is 19.99% cash advances
- Security deposit falls between $500 to $10,000 depending upon your credit limit
2. Home Trust Secured Visa
This is another credit card offered by Home Trust. Unlike its counterpart, it charges a small annual fee. However, the rate of interest is less than that of its no-fee counterpart. Its approval rate is above 95%. Hence, you are guaranteed to become a Home Trust Secured Visa credit card holder unless you are bankrupt.
- The annual fees is $59
- Credit limit of up to $10,000 is offered
- Security deposit ranges from $500 to $10,000 based on the credit limit
- The rate of interest is 14.90% purchases and 19.8% cash advances
3. Capital One Guaranteed Secured MasterCard
If you are looking for a secured credit card with easy and quick approval in Canada, then you should choose Capital One Guaranteed Secured Mastercard. With this credit card, you can raise your credit limit by up to $2500, if you give collateral.
However, there are some eligibility criteria to qualify for the secured credit card. Firstly, the applicant should be at least the age of majority in his region. Secondly, the applicant shouldn’t have any active application with Capital One. Thirdly, the applicant shouldn’t have applied for an account with them for the last 30 days. Lastly, the applicant must be able to pay the security deposit.
- $59 is charged as annual fees
- It charges an interest rate of 19.8% of purchases
- The credit limit offered ranges from $300 to $2500
- The security deposit ranges from $75 to $300
4. Refresh Financial Secured Visa
One of the safest and guaranteed option is Refresh Financial Secured Visa. The application process for this credit card is simple and there isn’t any credit check. The approval is guaranteed if you fulfill their conditions. Firstly, your age should be equivalent to a majority of the population in your area. You shouldn’t have any pending application with them or you shouldn’t hold any other credit card from them. Furthermore, you should be able to pay at least $200 as a security deposit.
- $48.95 is the annual fees
- An interest rate of 17.99% of purchases is charged
- They offer a credit limit up to $10,00
- The security deposit ranges from $200 to $10,000