It’s not always so easy to get new lines of credit, especially when your credit score is far from perfect. Let alone, a poor credit score will make it harder to secure home or business loans, and you end up having to pay high interest rates. However, one way to build up your credit is through a credit card, one of the most common forms of credit people use.
The reality is that many Canadian financial institutions and credit card companies have stopped offering credit cards to individuals with bad credit (some of these include Peoples Trust and Affirm financial). However, you don’t want to give up all hope because you still have options and it is possible to secure a credit card even when you have poor credit. Continue reading to find out what types of credit cards are still available to those with bad credit, and from there, make sure you do some research before applying to one.
How Do Credit Cards Help Your Credit Score?
Credit cards are an easy and simple option to rebuild you credit. You always want to show lenders that you have many different forms of credit line, so having a credit card gives you more credibility. Once you have a credit card, it will also start building your credit history, the longer the history you have the better since lenders want to see a longer payment history to determine how if you are trustworthy or not. As long as you are paying off your credit card statements on time, your credit score will improve, and if you’re late on payments, your credit score drops.
Types of Credit Cards: Secured vs. Unsecured
There are a few different types of credit cards in Canada that can help you rebuild your credit score. You’ll want to pay attention to the type of card so you can make sure you choose the right one for you. Also, you will want to avoid prepaid credit cards because they do not report to the credit bureaus, meaning they won’t have an impact on your credit score.
Secured Credit Cards:
A secured credit card is often easier to obtain compared to normal (unsecured) credit cards because they require you to place a deposit down first. Therefore, credit card companies don’t take on any of the risk and you’ll lose your deposit if you fail to pay off your debt in due time. Should you want to close your account, the lender will refund your security deposit. The limit on the card is directly dependent on the size of the initial deposit, meaning it can range anywhere from $500 to $5000.
Unsecured Credit Cards:
Unsecured credit cards do not require you to place a deposit down in order to be approved, which is the type of credit card most people know of. Even if you have bad credit, it is still possible to obtain an unsecured credit card. Many banks or lenders will offer low interest cards for those with less than perfect credit scores. These cards will usually have lower limits, but may offer the possibility to increase your credit line if you continue to make timely payments.
Guaranteed Credit Cards:
You can also keep an eye out for guaranteed credit cards, which are cards that banks ensure instant approval for. These cards usually come with benefits like travel insurance, gas rewards, payment protection etc. Essentially, guaranteed cards are specifically designed for individuals with poor credit and do not have many restrictions for approval.
Store Credit Cards:
Department stores often will offer some type of credit card that comes with a lot of perks. Those perks are usually along the lines of store discounts, coupons, points reward systems, etc. These types of cards are good for those with low credit scores since they are usually quick to approve and can be really beneficial if you regularly shop at the store. However, you should take note that these cards usually have higher interest charges.
Most of the larger banks such as RBC or BMO will offer credit cards to individuals with poor credit. So don’t fret and think that there’s no way out to improve your credit score if it dips a little too low. Know that you do have options, and there are many credit cards out there that are designed for people who have poor credit or even no credit history at all. It’s important to remember to do your research before applying so that you ensure that you picked the right card that best matches your needs.
Resources:
1. https://www.lifeoncredit.ca/top-6-credit-cards-for-bad-credit-in-canada/
2. https://www.greedyrates.ca/blog/top-credit-cards-for-bad-credit-canada-unsecured-secured-credit-card/
3. https://www.ratehub.ca/blog/the-best-credit-cards-in-canada-for-people-with-bad-credit/
