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 Affirm MasterCard is an unsecured credit card so it’s an excellent option for those who have bad credit but don’t want a card that requires a security deposit. It comes with a $3,000 credit limit and has a $7 monthly fee. The idea here is that they’re taking a bigger risk in offering a true line of credit to individuals with low credit ratings, so they’re asking for a fee to be paid monthly and not annually as a way to reduce this risk. Another way Affirm manages its risk is by requiring you to make a minimum monthly payment on your outstanding balance: either $30 or 4% of your balance—whichever is greater.
This card has an interest rate of 29.99% for homeowners (or 34.99% for non-homeowners) on all purchases and doesn’t have a cash advance option. This interest rate is extremely high and is designed to encourage users to rarely carry a balance, if ever at all. Since the whole purpose of getting a credit card for bad credit is to slowly regain the trust of lenders, it’s very important that you pay off your balance in full and on time with this card because with the combination of a $3,000 credit limit and a 29.99% interest rate, it’s very easy to slip into debt. There are no administration or pre-payment fees and you can use this card anywhere MasterCard is accepted. Once you’ve established a good rapport with Affirm and have built up your credit history, they can even re-evaluate and consider granting you an increased credit limit if that’s something you want.
The Capital One Guaranteed Secured Credit Card 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.
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