Credit card guarantee: how does it work?

In most cases, when you apply for a credit card, you are applying for an unsecured credit card. An unsecured credit card has a predetermined credit limit that you must not set with an asset or a deposit, and your credit limit is determined by how solvent you are.

But what happens if your lender considers you too risky for an unsecured credit card? The refusal can occur if you have a bad credit rating or no credit rating at all. It is more common than it appears, especially for newcomers to Canada, students, Canadians, or those who have a divorce, bankruptcy or consumer proposal.

You could be an ideal candidate for a secured credit card if your credit rating is low. Your credit rating is between 300 and 900. Most financial institutions require that you have a credit rating of at least 600 to qualify for an unsecured credit card. Otherwise, a secured credit card is a good way to build or establish your credit rating and get in the good graces of your lender.

 

Guaranteed credit cards

Guaranteed credit cards

Secured credit cards require a deposit to secure your loan. You pay a deposit to your lender, usually one or two times the amount of your credit limit, and the lender holds this deposit and extends you a credit card in return. While you use the credit card, your lender will keep the deposit, but they will pay you interest, and some lenders will even place your deposit in a GIC for you.

 

Who should use a secured credit card

Who should use a secured credit card

As mentioned above, secured credit cards are perfect for Canadians who have not yet established a credit history, such as newcomers to Canada and students. It can also be a good choice if you have a credit rating that is below 600. You can still apply for a secured credit card if you have been discharged from a bankruptcy.

 

Apply for a secured credit card

Apply for a secured credit card

When you apply for a secured credit card, you will have to pay a setup fee, usually a percentage of your credit limit. For example, if you apply for a secured credit card with a $ 2,000 credit limit and the setup fee is 3%, you will have to pay $ 60. You will also need enough cash to pay the deposit, which is usually one to two times the amount of the credit limit. In the example below

On top, you would need $ 2,000 to $ 4,000 at your disposal to give to your lender after approval, for a total of up to $ 4060.

Unlike unsecured credit cards (from which there are dozens), the market for secured credit cards is limited. Many financial institutions offer secure cards, including Capital One Canada, Peoples Trust and Home Trust.

 

Using a secured credit card

Using a secured credit card

Once you have been approved for your secured credit card and paid your deposit and freed of any fees, you can start using your secured credit card to build or rebuild your credit rating. You can use a secured credit card exactly as you would an unsecured credit card. Some secured credit cards have higher interest rates than unsecured credit cards so you should pay your balance in full at the end of each month.

 

Life after a secured credit card

Life after a secured credit card

A secure credit card is a stepping stone for Canadians without a credit rating or a bad credit rating. If you have been approved for a secured credit card, now is your chance to prove to your lender that you are able to use credit responsibly. You must pay your credit card each month, if possible, and if you can not, you must keep the balance within 35% of your credit limit.

If you do that, you will end up eligible for an unsecured credit card. You will get your deposit (plus interest), and you will enjoy the benefits of an unsecured credit card, including sign-up bonuses and reward points. It usually takes between 12 and 18 months to qualify for an unsecured credit card. How long you qualify depends on your credit rating, your repayment history and the degree of comfort that your lender has towards your personal finances.

 

Home Trust Secure VISA Card

Strong points

  • No annual fee
  • Interest rate of 19.99%
  • Your credit limit is set at the amount of your deposit you put
  • Applicants who have been released from bankruptcy are eligible to apply at any time
  • Applicants who are in a consumer proposal may request at any time

 

Secure VISA Card with Home Trust annual fee

Secure VISA Card with Home Trust annual fee

Strong points

  • $ 59 annual fee
  • Interest rate of 14.9%
  • Your credit limit is set at the amount of your deposit you put
  • Applicants who have been released from bankruptcy are eligible to apply at any time
  • Applicants who are in a consumer proposal may request at any time