Using a credit card responsibly and paying it off in full at the end of every month is a great way to build a good credit score. But what if your credit score is bad or non-existent, and you don’t qualify for a traditional unsecured credit card?
How your credit score affects your credit card choices
Your credit score can range from 300 to 900, but most lenders consider 600 as the minimum to apply for an unsecured credit card. If your credit score is lower than this, you may have trouble qualifying for an unsecured credit card. In this case, you can apply for a secured credit card to help establish or rebuild your credit score. A secured credit card gives you the opportunity to prove to the lender that you are a responsible borrower.
How secured credit cards work
Just like how an asset backs a loan, a security deposit backs a secured credit card. A security deposit eliminates risk for the lender and gives you a chance to prove your credit worthiness. In most cases, a security deposit of one to two times the credit limit on the card is required. If you decide to cancel the card, you’ll get your security deposit back. Some lenders will even invest your security deposit in a GIC where it’ll earn interest.
There are several secured credit cards to choose from in the marketplace. The Home Trust Secured Visa Card is a great option. You can use it exactly as you would any other Visa card. You can make purchases online or over the phone, withdraw cash at any of the one million ATMs that display the Visa logo, and make purchases at more than 24 million retailers that accept Visa.
There are two versions of this card to choose from. Let’s look at the differences:
The Home Trust Secured Visa Card (no annual fee)
If you’d rather not pay an annual fee for this credit card, the no-fee version has a 19.99% interest rate on all purchases and cash advances. There’s no minimum individual or family income to qualify for this credit card, but you do need to be a permanent resident of Canada. There’s also no balance transfer option on this credit card.
The Home Trust Secured Annual Fee Visa Card
There’s also a version of the card with an annual fee of $59 and a lower interest rate of 14.9% on all purchases and cash advances. Just like the credit card above, there’s no minimum individual or family income to qualify, but you need to be a permanent resident of Canada. Just like the no-fee version, you can’t transfer a balance from a higher interest credit card onto this credit card.
|Home Trusted Secured Visa Card||Home Trusted Secured Annual Fee Visa Card|
|Security Deposit||$500 – $10,000||$500 – $10,000|
|Credit Limit||Equal to Security Deposit||Equal to Security Deposit|
Transitioning from a secured credit card to an unsecured credit card
Once you’ve acquired this credit card, make sure to use it responsibly. Responsible credit card usage will help improve your credit rating enough to qualify for an unsecured credit card. Here two rules of thumb for responsible credit card use:
- Never miss a minimum monthly payment
- Keep your total balance owing to less than 35% of your credit limit
Let’s expand on that last point: ideally, you should pay off the credit card in full every month, but if you need to carry a balance, keep it to less than 35% of your credit limit. For example, if you have a $2,000 credit limit, you should keep your balance owing below $700.
Once you prove that you can use this secured credit card responsibly, your card issuer should eventually offer you an unsecured credit card, and you’ll get your deposit back.
The last word
If you’ve been discharged from bankruptcy, you can still apply for either card, but you may need to produce your discharge certificate during the application process. If you’re in a consumer proposal, you’re also welcome to apply.
If you plan to apply for the Home Trust Secured Visa Card, keep in mind that you’ll need to put down a deposit equal to the credit limit you desire. You can put down as little as $500, or as much as $10,000. For example, if you’re applying for a credit card with a $2,000 limit, you’ll need a $2,000 deposit.