As the saying goes, past behaviour is the best indicator of future behaviour. And in that spirit, your credit history is what lenders use to determine your credit worthiness. In other words, they use your past financial history to judge how likely you’re able to repay your debts in full and on time.
If you have a poor credit history or no credit at all, then lenders either don’t trust that you’ll be timely and consistent in your repayments, or they have nothing with which to assess your risk—and lenders aren’t about to give you the benefit of the doubt.
So, how do you go about building (or rebuilding) your credit history? There are lots of credit cards for bad credit, most of them being secured credit cards. Secured credit cards differ from other credit cards in that they require you to provide a security deposit that’s equal to or greater than the credit limit. Here are three of what we think are the best credit cards in Canada for people with bad or no credit:
If you don’t qualify for an unsecured credit card, then the Home Trust Secured Annual Fee Visa Card might be a good option for you. This card requires you to pay a security deposit equal to the amount of the credit limit you’d like. You can put down as little as $500 and as much as $10,000. This provides you with the opportunity to build your credit rating up at a rate that you’re comfortable with. If you want to use the card for small purchases to slowly regain creditors’ trust but you still want the freedom to buy those bigger ticket items, this card lets you do just that.
This card is available to all Canadian residents except residents of Quebec, and has an approval rating of more than 95%, so you’re almost guaranteed to be able to get one—even if you’ve been bankrupt in the past (so long as you’ve been discharged). The card has an annual fee of $59, which you can choose to pay at $5 per month. It comes with a low interest rate of 14.9% on all purchases (19.8% for cash advances), which makes it a good choice for those looking to re-establish their credit rating and who trust themselves to not often carry a balance. Since this isn’t a prepaid card, you can’t use your security deposit to pay off your balance, but once you close your account it will be returned to you in full.
The Capital One Guaranteed Secured MasterCard is a guaranteed credit card so this is a good option for those who don’t want to worry about getting approved. This card gives you the opportunity to rebuild your credit regardless of your credit history. However, this does come at a cost as it has an annual fee of $59, which is charged in the month of activation each year. This credit card offers a limit of $300 or more. It’s important to not exceed your limit or your account will be charged a fee of $29. The card has an interest rate of 19.8% so it’s important you pay off your balance in full each month.
Since the Capital One Guaranteed Secured Credit Card features guaranteed approval, it’s an ideal choice for those with bad credit history. Finally, in order to minimize risk, the card requires security funds of $75 or $300. Either amount will be reimbursed in full if you ever decide to close your account and pay off your entire balance.
The Scotiabank Value Visa isn’t a secured credit card, so it doesn’t require you to put down a security deposit that acts as your credit limit. With a low interest rate of 11.99% on purchases, cash advances and balance transfers, this is a good card to graduate to once you’ve improved your credit score using a secured credit card and proved you can be relied on to pay off your credit card balance on time every month. If you think you’ll occasionally carry a balance on your credit card from month to month, the best low interest credit cards are the way to go.
Note that this isn’t a rewards credit card—you won’t get cash back or travel points. However, low interest credit cards are typically easier to quality for, and the $29 annual fee and low minimum annual income requirement of just $12,000 per individual make it an accessible option for many Canadians.
This card has the typical 21-day grace period on purchases, so if you pay it off in full within that period, you won’t be charged any interest. It also offers a 1.99% introductory interest rate on balance transfers within the first six months, making it a great card if you’re looking to pay off a whack of credit card debt.
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