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6 of Canada's best secured credit cards

By Kristen Frisa

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Credit cards are must-have payment tools for online shopping, car rentals, hotel reservations, emergency spending and other essential transactions. Yet those with bad -- or no -- credit history might find it difficult to get a card.

Secured cards present a possible solution. Secured cards require the cardholder to deposit funds in advance, and this deposit helps offset the risk to the issuer. 

Secured cards are "an easy way to re-establish credit, for people who don't have credit, or people who are afraid to use credit," said Rhoda McNeil, senior insolvency administrator at BDO Debt Solutions. "It's a safe way because that deposit is being held so they're not typically going to exceed what their limit is and have the fear of not being able to pay it." best-secured-cards

Generally, your credit limit matches your deposit amount, but deposits can vary from one institution to another, an estate administrator at an insolvency trustee firm told CreditCards.Ca.

"Sometimes, the banks ask you for a full deposit, so, for example, if you have a thousand-dollar credit limit, they will ask you for a thousand dollars to be put on deposit," the estate administrator said. "Institutions are more likely to issue a secured credit card if you have damaged credit."

If you don't have a credit card, you could, of course, use a prepaid card to shop online or in other instances in which plastic is necessary. However, secured cards can have one distinct advantage: they help you build your credit.

Secured card activity is reported to the credit bureaus, the estate administrator said, "which is what a lot of people are looking for."

However, don't let secured cards lull you into a false sense of security. It's still important to pay attention to fees and high average percentage rates (APRs) that can quickly add up.

Here are some of the best -- and most affordable -- Canadian secured cards.

Secured credit cards without annual fees
One of the best ways to nurture a strong credit score is to regularly pay off monthly balances. To minimize expenses for conscientious cardholders, the following secured cards charge no annual fee.

  1. No-Fee Scotiabank Value Visa card.
    Several of Canada's major banks offer "secured" versions of their regular unsecured cards. Scotiabank's No-Fee Visa card requires a minimum $500 security deposit for a corresponding credit maximum. Cardholders pay an APR of 16.99 per cent and qualify for Visa Perks discounts.

    Con:
    Breaching the card limit results in a $29 over-limit fee plus a $48 dishonoured payment penalty.

  2. BMO Preferred Rate Mastercard.
    The secured version of the BMO Preferred Rate MasterCard comes with an 11.9 per cent APR. That same rate applies to purchases, balance transfers and cash advances. The card features free extended warranty and purchase protection.

    Con:
    The over-limit fee is $29, with a $48 dishonoured payment charge.

  3. Home Trust Equityline Visa card.
    This hybrid secured card uses available home equity as collateral, rather than cash. APRs range from 4.99 per cent to 11.99 per cent, as determined by the card issuer. The credit limit can reach up to $75,000. Possibly best of all, this card is a cash back card - you can earn 1 per cent cash back on all purchases.

    The card boasts low monthly payments: the greater of $10 or a percentage of the balance (between 0.75 per cent and 1.25 percent, depending on your rate).

    The money that is set aside as collateral is not yours for as long as you use the card. "Home trust does not give the person's money back to them unless they surrender the card," said McNeil.

    Con:
    The setup fee is 2 per cent of the credit limit, plus roughly $544.80 for title insurance and a $35 search fee.

Secured credit cards featuring low APRs
To minimize the cost of carrying a balance, some consumers focus on secured cards that impose lower interest rates. But be careful - if you miss payment deadlines, the secured card's APR can spike, just as it would with a regular, unsecured card.

  1. RBC Visa Classic Low Rate card.
    The RBC Visa Classic Low Rate card's APR is 11.99 per cent, with a modest $20 annual fee.

    What makes RBC secured cards highly competitive is that your security deposit earns interest within a Guaranteed Investment Certificate (GIC) account, according to the Financial Consumer Association of Canada (FCAC).

    Con:
    RBC secured cards are ineligible for balance transfer promotions and introductory rates.

  2. TD Emerald Visa card.
    This card's APR is TD's prime rate + 1.5 percent, up to prime + 12.75 per cent (as of July 13, 2017, the TD prime rate is 2.95 per cent). The TD Emerald Visa Card requires a minimum of $1,000 in collateral, which TD Canada Trust holds for up to three years. Most other lenders hold it for only two.

    Con:
    The APR can rise dramatically if the underlying prime rate spikes.

  3. Capital One Low Rate Guaranteed Secured Mastercard.
    The Capital One product is one of the few Canadian secured cards that you can apply for online, requiring only an electronic funds transfer and satisfactory proof of identity. Subject to card issuer approval, the security deposit can be as low as $75. The card's APR is 19.8 per cent.

    Con:
    For a deposit refund, the card's balance (including the annual fee) has to be fully paid.

Prepping for a secured card
Regardless of which secured card you choose, it's wise to check your credit score before applying, and again after you've used your card for a year or more.

The estate administrator said she encourages people with damaged credit ratings to use the tools available to build credit. Applying for a card with a deposit and a small credit limit is just one of the tools at your disposal.

"It's a good way, if you have damaged credit, to get started again, where there's less risk to the creditor and the advantage to you is that you get to rebuild your credit, provided you handle it correctly," she said.

She said people need to keep an eye on their credit rating, checking annually for mistakes and to make sure they're on the right track and their scores are rising.

"A lot of people don't understand how important a credit rating is anymore," she said. "You can't do anything, even rent an apartment, without a credit check, so there's a lot of power there."

McNeil urges using secured cards, just like any credit card, with care.

"Some people handle credit and don't have a problem, others use it very freely and have to put some checks in place in order to use it wisely," McNeil said.

"If you don't make your payment when you're supposed to, interest will start to apply. It's a normal credit card, so interest is generally the same as other cards," said McNeil.

See related: 6 common credit score mistakes; Can a higher credit score lower your insurance rates?

 


Updated: July 20, 2017