The best way to build (or rebuild) credit is to apply for a credit card and use it responsibly. But what if your credit score is so low that you don’t qualify for a traditional unsecured credit card?
In the past, if you had a low credit rating, the only way to rebuild it was to apply for a secured credit card. Secured credit cards are credit cards that are backed by a security deposit. You pay a deposit on the credit card up front, usually equal to or up to double the credit limit. The deposit secures the credit card for you and protects the lender in case you default and don’t pay back your loan.
You can use a secured credit card to pay for your purchases and build up a solid credit history and rating. After six to 12 months, your lender will return your deposit and transition you to an unsecured credit card.
A secured credit card is a good place to start building your credit rating, but it has one major drawback: you must have enough cash upfront to pay the security deposit. For some Canadians, this can be a significant barrier, especially for larger credit limits that require you to save several thousand dollars.
Fortunately, there’s now another option: the Affirm MasterCard, an unsecured credit card designed specifically for users with poor credit.
The Affirm MasterCard is unique because it has most of the features of a secured credit card, but with the benefits of an unsecured credit card.
For example, just like a secured credit card, you don’t need to have a good credit score to apply for this card. You’ll only need a credit score of 600 or higher, or 500 if you’ve been discharged from bankruptcy or arranged a consumer proposal. The minimum income requirement is also low—if you earn $20,000 a year, you can qualify for this credit card.
You can use the Affirm MasterCard like any other MasterCard. You can use it to shop both online and at retail outlets, and you can check your balance anytime online using the convenient web portal.
You don’t need to put down a security deposit to apply for this credit card, and you can request a credit limit up to $3,000. The Affirm MasterCard also reports to the credit bureaus every month, so your responsible spending behaviour will be rewarded quickly.
The Affirm MasterCard does have a few drawbacks. First, the interest rate charged on purchases is a steep 29.99% for homeowners and 34.99% for non-homeowners, compared to the 19.99% interest rate on most unsecured credit cards. However, you can avoid any high-interest charges by paying off your credit card balance every month.
The second drawback is the card’s $84 annual fee, which breaks down to $7 a month. An annual fee isn’t uncommon for credit cards, but it’s a factor that needs to be weighed among the other pros and cons.
The Affirm MasterCard is offered by Affirm Financial, a lending company that offers personal loans for customers who have difficulty getting credit from banks, but are looking to re-establish their credit, need money for a sudden emergency or need a loan to cover day to day expenses. While Affirm Financial has traditionally been in the personal loan lending space, they have recently expanded their product offering to include the Affirm MasterCard.
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- Credit Card Eligibility Explained
- 3 Ways to Pay Off High-Interest Credit Card Debt
Flickr: Håkan Dahlström