In Canada, having bad credit can have a lot of negative consequences. Bad credit holders often find it difficult to get a lease, car loan, or a mortgage. Even applying for a new credit card can be a challenge. That’s why it’s crucial to maintain a good score or improve your score if it is low. Rebuilding your credit score is hard, but far from impossible thanks to a number of Canadian credit card companies that offer credit cards that are ideal for people with a limited credit history or low scores.
How Do I Fix a Bad Credit Score?
Using a credit card properly and paying it off on time every month is the best way to build and maintain a good credit score and rebuild a bad one. After all, 35% of your credit score is dependent upon your payment history.¹ Another 30% of your credit score is calculated based on credit utilization. Simply put, if you’re taking out less credit, you’re score will be better. New credit cards increase credit limits and thus decrease credit utilization. Through a credit card, you will be able to take out small amounts of credit that can be paid back in a timely manner, thus building a positive record of payment history that demonstrates your responsible use and understanding of credit. It is important that you view your new credit card not as a way to pay mindlessly for new gadgets and gifts, but as a building block to a better credit score.
Difference Between Secured Credit Cards and Guaranteed Credit Cards
Many people with bad credit won’t be able to sign-up for a regular credit card, but they can choose a secured or guaranteed credit card.
To activate a secured card, you will need a security deposit,² which in most cases is as much as the credit limit. Deposits start out at around $200 and go up to $1000 or higher, and the deposited amount is returned once you pay off your balance and close your credit card.
If you can’t get anything else, you will almost always be approved for a guaranteed credit card.³ Many companies offer a questionnaire to see if you qualify before having to take a hit to your credit score due to a hard inquiry. Although having to pay a deposit for your credit card may seem like a hassle, you should view it instead as a chance to prove to your bank that you can pay off your credit in a timely manner.
Best Credit Cards to Fix Bad Credit Score
1. BMO Secured Credit Card
The BMO Secured Credit Card is an excellent option for bad credit holders. Why? This reloadable MasterCard from BMO has a security deposit range from $100 to $10,000 which equals your available credit.⁴ Applying for the card takes only a few minutes and can be done online, while the annual fee is just $6.95 with no interest rate added to purchases. In short, this card is a basic, low fee credit card that will help you build up trust with your bank.
2. Home Trust Secured Credit Card
Another excellent option, the Home Trust Secured Credit Card is an affordable way to build your credit score, and it comes with two different variations. With the Home Trust Secured Credit Card⁵ you can deposit anywhere from $500 to $10,000, which equals your credit line, but you can increase it with additional deposits. APR comes out at 19.99% without an annual fee or 14.9% with a $59 fee per year.
3. Refresh Financial Guaranteed Credit Card
To get a secured credit card⁶ from Refresh Financial, you will need a Canadian ID, minimum monthly income, and an open bank account, but they don’t ask for a credit check before approval. Credit limits depend on deposit size and can range from $200 up to $10,000, while the APR is 17.99% and with an annual fee of $12.95.
4. Capital One Guaranteed Credit Card
Getting a Capital One Guaranteed Credit Card⁷ is another great possibility, but be aware before you apply you need to fulfill the following conditions:
– Be of legal age in your territory or province
– Not be a current holder of a Capital One card
– Not have owned an account in bad standing in the last year
– Not have applied more than once in the last month for a Capital One card
Capital One offers an unsecured or secured card based on credit history and credit limits in the range of $300 to $7,000 with an APR of 19.8% and $59 in annual fees, so it is a more personalized option that will adapt to your needs.
To Conclude…
Whichever of these options you choose, or if you decide to apply for a card that is not listed here, make sure to do plenty of research. Read the fine print and make sure you know and understand all of the conditions. Be sure, above all else, to use your new credit card responsibly and never overspend beyond the limit of what you will be able to pay next month.
[1]https://www.greedyrates.ca/blog/your-credit-the-basics/
[2]https://refreshfinancial.ca/blog/credit-tips-and-tricks/unsecured-vs-secured-credit-card-differences/
[3]https://www.ratesupermarket.ca/credit_cards/guaranteed
[4]https://creditcardgenius.ca/blog/prepaid-credit-cards-canada/#prepaid-mastercards
[5]https://www.hometrust.ca/credit-cards/secured-visa-card/
[6]https://www.lifeoncredit.ca/refresh-financial-secured-credit-card/
[7]https://www.greedyrates.ca/blog/top-credit-cards-for-bad-credit-canada-unsecured-secured-credit-card/
