What is a Secured Credit Card and Who Needs One?

Many people can't qualify for a traditional credit card. If you don’t have a credit history in Canada, or if you have a negative credit history from past mistakes, it may be hard to qualify for an unsecured credit card. This is due to lenders seeing you as more risky than someone with years of using credit effectively. Thankfully, if your credit is poor or non-existent, that doesn’t mean you can’t get access to credit. You may need to instead opt for a secured credit card, which will help you make those same emergency, online or in-store purchases. Keep reading to learn all you need to know about secured credit cards, and how they work.

What is a secured credit card?A secured credit card is similar to any other credit card except that the lender requires that the cardholder deposit money in advance. The amount can vary, but is generally anywhere between one to two times the credit limit. So if you want a limit of $1500, you will have to pay them somewhere between $1500 and $3000 in most cases.

The lender will keep this as collateral and then provide you with a secured credit card. Your deposit simply protects them in case you cannot pay off the balance. If you can’t or don’t pay, they will simply keep the deposit or at least a part of it, so they aren’t out any money. Because this lowers the risk for lenders, these cards are much easier to get for almost anyone, even if you haven’t been the best with credit in the past.

How does a secured credit card work?Now that you know a little about what they are, it is a good idea to familiarize yourself with how they work. The good news is that once your deposit is paid to the lender and you have received the card, it will work nearly identically to a normal unsecured credit card. You can use them anywhere that credit cards are accepted, and if you carry a balance you will still be required to pay interest.

10 Tips to Improve Your Credit Score in Canada

Consider a credit report as a resume of your consumption and borrowing habits. Unlike a professional CV, this report does not provide you with the same “creative freedom” in which you present your past in its finest light. An old job that turned sour can be easily omitted from your record. But late payments and old, unpaid debts are another matter! You should know that your credit report has a long memory (7 years) and compiles your information rigidly. Your credit score is the result of a formula that doesn’t give a damn about good intentions and bad luck. It’s […]