Last updated on October 26th, 2020 to keep up with new developments in the secured credit card marketplace in Canada and update the card rankings.
Secured credit card is a card issued by a financial institution, which is backed by a security deposit. Sometimes these cards are known as “guaranteed credit cards”. Very often the application process ends with instant approval or denial of the borrower as everything is done online.
2020 has been a tough year for many and getting secured credit card in Canada is getting harder, because fewer and fewer financial institutions offer them. The financial products offered to Canadians with bad credit are far and few between, and this segment of the market is badly underserved. I get daily emails asking how to get a secured card, which one to get, which cards are easy to get, what credit score do you need to qualify for one, etc. My advice to you is to read the article below, read the many user comments talking about their experience in applying for a credit card secured by deposit, and make a decision based on your research.
My first credit card was with CIBC, and because I had no credit history I had to settle for a secured credit card. The card had $500 limit, which I had to deposit with the bank – not much of a credit card :). I used it for 2 years making small purchases and paying it off every month diligently, which helped me establish good credit history. While many of the big banks advertise financial products targeted at recent immigrants, and people who simply have no credit history yet, the fact is that getting even a secured credit card is much tougher nowadays in Canada. Even Peoples Trust out of British Columbia, which was a major player in the Canadian secured credit card space, decided to discontinue their card.
In the early 2000’s all major Canadian banks offered secured credit cards, but this is no longer the case. I haven’t seen a secured card advertised by a major Canadian financial institution for a while, and I know for a fact that Scotiabank and CIBC have no such products. Even if the rest of the big banks still have such cards on offer, they are not easy to find or their use is discouraged.
If you are in the market for secured card, you might also consider getting a unsecured credit card with low limit, which should be easier to get. You can try store credit cards like Canadian Tire Triangle MasterCard or Amazon.ca Rewards Mastercard for example. While not perfect these cards are somewhat easier to obtain, and with less and less financial institutions offering secured credit cards, it may be the right choice for you.
Find a solution to credit issues – get a secured credit card
People with bad credit usually apply for a secured card because they have a more limited choice, especially when it comes to specialty cards with attractive rates and terms. They are also offered to those who are new to credit as well as recent immigrants, newcomers, and students. Secured credit cards are available from unions, small and major banks, and other establishments and help consumers establish credit.
How Secured Credit Cards Work
Issuers require a cash deposit or security funds as a guarantee of on-time payment. It is usually equal to or larger than the limit offered. The only difference between secured and unsecured cards is the fact that security funds are required because financial institutions deal with high-risk borrowers who are more likely to default. Your credit card is backed by your deposit, hence the term “secured”. Other than that, holders can use the card to make payments online and in-store, to pay bills, and of course to build their credit.
Benefits for Users
The main benefit for users is that payments are reported regularly to major credit bureaus such as TransUnion and Experian. Customers who keep their balance low and make on-time payments gradually establish or reestablish credit. The timing of reports and the issuer’s reporting practices determine how long it takes before your card appears on your credit file.
What Is the Right Credit Card for You?
The choice of a secured card depends on whether you are a regular bank customer or a union member and other factors. When comparison shopping, look at the credit limit, grace period, and purchase and penalty interest. In general, whether a product is right for you depends on the issuer’s reporting practices. Some establishments report only missed and late payments while others report all payments and help build credit with time.
Who Is Eligible to Apply
Individuals with any credit profile qualify, from tarnished and fair to stellar. Legal residents and Canadian citizens of legal age are eligible to apply for secured credit card. You must be of the age of majority for the province or territory where you reside. Some major banks like TD even offer secured cards to customers who don’t have Canadian credit history, including international students and foreign nationals (temporary residents). The range of products available depends on different factors, including your credit rating and financial situation. When applying for a secured card, consumers are often asked about estimated monthly payments, including lines of credit, loans, mortgages, and other accounts. Financial institutions also request information about your rent or mortgage payments as well as income amount, employer, and sources of income. Many card issuers require that applicants have a verifiable permanent address in Canada and a verifiable source of income (i.e. proof of income).
Top 6 Secured Credit Card Picks
This is a brand new secured card from Refresh Financial targeted at customers with bad or no credit, and people looking to build or re-build their credit. This secured Visa doesn’t require a credit check, so it should be very easy to get. Here are the main Refresh Secured Card features.
- Credit limit: $200 to $10,000
- Purchase Interest rate: 17.99 percent
- Annual fee: CAD $48.95
This is NOT a secured credit card but the advantage it has is a higher chance for approval compared to the Big Five banks. Customers earn unlimited rewards and can either redeem them into their savings accounts or add them to their card balance. The Tangerine Money-Back Credit Card has:
- No annual fee
- Interest Rate: 19.95%
- 0.50% Money-Back Rewards on all your other everyday purchases.
- 2 percent back on select purchases (categories of your choice).
A yet another credit card by Scotiabank, this is a great solution to transfer existing balances, even though this is not a secured card. The introductory rate is just 3.99 percent and is in effect within 6 months of opening the account. The intro rate applies to credit card checks, balance transfers, and cash advances. The interest-free period is 21 days. Special discounts are offered, including car rental discounts. Optional credit card protection coverage is also available in the event of job loss, disability, or another unfortunate event.
- Balance transfer fees: none
- Interest rate: 16.99 percent
- Annual fee: none
Home Trust also offers a credit card that helps consumers to enhance their credit profile. Virtually everyone applying for a secured Visa gets approved, and there are two options available:
- No annual fee with 19.99 percent interest rate
- Annual fee of $59 with 14.9 percent interest rate
In addition to attractive terms and interest rate, this card goes with benefits such as the option to add an authorized user and a credit limit that can be as high as $10,000. The minimum limit is $500. This card can be used to book a vacation, make purchases online and over the phone, and access cash.
#5 – Fifth Place
Vancity enviro Secured Visa
Vancity features a secured card with a deposit of just $500 and plenty of added and optional perks, including delay and lost baggage insurance, price protection, travel accident insurance, and others. This card is available to applicants who don’t have a previous Canadian credit history and to recent immigrants. There are different options to look into, for example, enviro Classic which is a good choice for customers who pay the full balance. This card helps borrowers to rebuild credit and is intended for customers who have experienced financial problems in the past.
- Annual fee: none
- Interest rate: 19.5 percent
#6 – Sixth Place
RBC Visa Classic Low Rate
RBC features a low-cost card designed for customers who carry a balance. The card features optional and standard add-ons such as travel insurance and chip and PIN technology and can be used as a tool for debt consolidation to save on interest payments. Users are also offered additional cards with no annual fee. There is a card registration service for important documents and cards and auto payment service for ease and convenience.
- Interest rate: 11.99 percent
- Annual fee: $20
#7 – Seventh Place
Capital One® Guaranteed Secured MasterCard®
This card is ideal for individuals who need to establish credit history and goes with guaranteed approval. The credit limit varies and can be $300 or higher. The minimum security funds to deposit with the bank and access credit are in the amount of $75. Standard benefits that go with this card include referral to the closest ATM, zero liability, and others. Holders are free to make internet and in-store purchases, hotel reservations, car rental bookings, gas purchases, and more.
- Purchase rate: 19.8 percent
- Annual fee: $59
- Grace period: min 25 days
#2 – Old Second Place
Peoples Trust Secured MasterCard®
This card is no longer available.
This secured card is a flexible solution designed for customers with limited or no credit exposure, new immigrants to Canada, students, and anyone looking to build credit. It is also ideal for borrowers with poor ratings such as discharged bankrupts and those with serious credit problems. Similar to standard cards, this MasterCard helps holders to improve their rating with time. Customers with a verifiable source of income qualify.
- Credit limit: $500 or higher
- Purchase Interest rate: 12.99 percent
- Monthly fee: CAD $5.80
- Interest rate on cash advances: 24.50 percent
Fees, Limits, and Rates
The interest rate varies by issuer and is usually around 20 percent. It is in effect once the account has been activated. The rate on balance transfers and cash advances can be the same or different. In general, the rate is slightly higher compared to unsecured cards because financial institutions take more risk. Many applicants have a history of missed or late payments, maxed out cards, defaults, foreclosure, and even bankruptcy. This is why fees and service charges are usually higher as well. At the same time, there are many banks that feature credit cards with no annual fee, including Scotiabank and TD Canada Trust.
The grace period also varies from 19 to 25 days and applies to regular bank transfers and new purchases. Secured cards have a zero-day grace period on special bank transfers and cash advances. The available limit and security funds required depend on your financial circumstances and can be as high as $10,000 and as low as $500. Some banks even offer cards with lower credit limits. If you plan to make large purchases (one-time and big-ticket items), it is better to choose a card with a larger limit provided that you make timely payments and pay at least the minimum before the deadline (grace period). The minimum payment can be $10 or 3 percent or fees plus interest but this depends on the card of choice. Make sure you check the minimum monthly payment, especially if you only pay the minimum.