A credit card is an excellent way to establish a positive credit history and boost your credit score. Unfortunately, life circumstances like financial hardships, loss of employment, and overspending could lead to a low credit score. Your credit score plays a significant role in your finances, so poor credit history can limit your loan, mortgage, and credit card approval opportunities.
However, Canadians can get a credit card despite having poor credit. Here, we provide a guide featuring details about the best credit cards for bad credit. We also explain everything you need to know about credit scores and rebuilding credit to help you make better financial decisions.
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A credit score is a number ranging from 300 to 900 that indicates your credit behaviour. Financial institutions and other organizations use credit scores to determine a person's ability to pay financial obligations on time and in full based on past spending behaviours.
A formulaic scoring model and the information on your credit report are the factors that make up your credit score. The individual factors within your credit report that credit reporting bureaus consider are:
The number and type of loans you have under your name
Your bill-payment history
Recent credit applications
The longevity of your open loan accounts
Existing unpaid debt
Debts in collections
Some people assume that they have a single credit score that all institutions use. However, each credit reporting company uses different criteria for their scoring models, so their scores can vary.
The higher your credit score, the more credit options you will have. You will have access to more credit cards, loans, and other financial products, and more favourable interest rates and loan terms.
Most credit card issuers require applicants to have a credit score of at least 660 to be eligible for their products. It's possible to qualify for a card with a lower score. However, you will have fewer options and may pay higher rates.
What Does Canada Consider to Be Bad Credit?
Credit bureaus in Canada don't share the precise formula for their scoring models. However, credit scores generally fall into these categories:
Excellent Credit: 900-760
Very Good Credit: 759-725
Good Credit: 724-660
Fair Credit: 659-561
Bad Credit: 560 and below
The closer your score is to 300, the less likely you will get a standard unsecured credit card. However, there are other options.
Not having an established credit history in Canada may seem like a positive attribute toward your creditworthiness, but credit does not work that way. The only way to have a high credit score is to have an established credit history with good spending habits. More, is that having a decent credit score will allow you to be approved for far more low-interest credit cards such as these ones.
If you have an established Canadian credit history, it could fall into the poor credit score category if you encounter one or more of these financial situations:
You use all or most of your available credit.
You pay bills past their due dates.
You open numerous credit accounts within a short time.
You don't have enough credit accounts.
Your overdue bills are with a collection agency.
You have too many varying accounts, such as credit cards, car loans, and mortgages.
Your credit report includes foreclosures, bankruptcies, and collections.
Types of Credit Cards for Canadians with Bad Credit
Not all credit card types are the same. When exploring the best credit cards for bad credit, it's important to know the different kinds of cards available. You may only qualify for one or two types depending on your creditworthiness.
Here is a closer look at the three credit card options.
Secured Credit Cards
Secured cards are ideal for anyone with poor credit scores or no credit history who wants to improve their creditworthiness. The card works only if the cardholder makes a security deposit into a savings account that the card issuer provides. The amount in the account becomes the person's credit limit, so you can never spend beyond the funds you actually have.
Like a standard credit card, you must make monthly payments towards all balances for an unsecured credit card. If you fail to make timely payments, the funds in the savings account will cover the amount owed. However, the credit card company will report the missing payment to your credit report, which will negatively affect your credit score.
Some secured credit cards have expensive fees, which may not be suitable for someone in the midst of financial hardship. For instance, the card provider may charge an annual, monthly, or insurance fee. It's always a good idea to seek affordable credit cards, but the security you get with a secured card can allow you to establish good credit before applying for other, less expensive cards.
Unsecured Credit Cards
Unsecured cards are what most people associate with credit cards. When you apply for an unsecured credit card, the provider will review your application, credit score, and credit history. Depending on how well your information fits the card issuer's eligibility requirements, they may approve or deny you access to the card.
You will have a pre-determined credit limit without requiring a security deposit if you have approval. Your credit score will determine your credit limit, which could be a few hundred or a few thousand dollars. You must make on-time monthly payments to keep your account in good standing.
Like secured cards, unsecured credit cards will likely have fees for purchases that exceed the credit limit, maintenance fees, and late charges. However, an unsecured card's associated costs are usually lower than their secured counterparts.
Prepaid Credit Cards
A prepaid credit card is similar to a secured credit card because its limit depends on the funds you provide. However, a prepaid card requires you to "load" money onto the card directly instead of putting it into a savings account you cannot access.
The only money you can spend on a prepaid card is the amount you put into it. If you spend everything on the account, you must reload it with additional funds. These cards are best for making purchases online or in brick-and-mortar shops and paying bills without the risk of overspending.
Most prepaid cards do not report a person's spending habits to credit bureaus. Using the card will not affect your credit score positively or negatively.
If you're looking for a credit card to rebuild or establish your credit, a prepaid credit card is not the ideal choice unless you find one that provides reports to credit reporting agencies. However, prepaid cards are a suitable option if you want the convenience of a credit card without exceeding a credit limit.
Top Credit Cards to Consider If You Have Bad Credit
Below is a list of the best credit cards for bad credit. We cover secured, unsecured, and prepaid cards with decent rates and benefits with few drawbacks.
One of the best credit cards for bad credit is the Home Trust Secured Visa. This secured credit card is available to many Canadian residents with a credit score between 300 and 559. With a Home Trust Secured Visa, you won't have to worry about paying extra for annual or additional card fees.
Because the Home Trust Secured Visa is suitable for individuals with a bad credit score and history, its interest rates are higher than a secured card for fair or good credit. However, the 19.99% interest rate is reasonable in comparison to other low-credit secured credit cards with high APRs. The 19.99% interest rate applies to the following:
You can deposit any amount of funds onto the card. Home Trust Secured Visa will match up to $10,000 to create your credit limit. Suppose you prefer to enjoy your credit limit with a lower interest rate. In that case, you can agree to pay an annual fee for reduced monthly charges.
The Home Trust Secured Visa credit card is one of the best credit cards on the Canadian market to help users rebuild their credit. Using this card wisely is one of the best ways to boost your financial status and upgrade to unsecured credit cards for good and excellent credit, which offers benefits like higher credit limits and lower interest rates.
Properly utilizing this card for credit rebuilding will require you to use the card and pay off all balances each month. The credit card issuer will report your good credit habits to TransUnion and Equifax to build your credit.
Even if you do not have an established Canadian credit history due to new residency or young age, you can likely receive approval for the Home Trust Secured Visa. This credit card issuer accepts applications from almost anyone, including individuals with a bankruptcy in their credit history.
Neo Secured Credit Card
Interest: 19.99% - 26.99% (CA and P) Annual Fee: $0 Top Perks:
Another option for a secured credit card for low credit scores is the Neo Secured Credit Card. This card has no annual fee, and you can deposit between $50 and $10,000 onto the card to create your credit limit. This low minimum deposit ensures that the credit card is accessible to many consumers.
Like the Home Trust Secured Visa, the interest rate for purchases and cash advances using the Neo Secured Credit Card is around 19.99%. However, the APR could increase to 26.99% due to the credit card insurer's assessment of your credit history, credit application, and province.
The rewards program with various Neo partners is one of the best aspects of the Neo Secured Credit Card because it gives cash back to cardholders for their purchases. Participating in the Standard rewards program does not require an annual fee. With this program, cardholders will earn the following:
0.5% guaranteed cash back on all eligible purchases
Up to 5% cash back through Neo partners with no cap
As much as 15% cash back on first purchases with specific Neo partners
Qualification criteria for the Neo Secured Credit Card include the ability to apply the minimum security funds to the card and Canadian residency. You must also be at or above the age of majority for your province.
The KOHO Premium Reloadable Prepaid Mastercard is an excellent option to consider when exploring prepaid credit cards. It requires no minimum deposit, and you can deposit up to $200,000 into it. The card also comes with a rewards program that pays back cardholders a percentage of their purchases at select KOHO partners.
The money you earn as a participant in KOHO's cash-back rewards program will deposit into your card's savings account. You will gain an additional 1.2% in interest on every dollar within that account. With the rewards program, you could receive perks like:
As much as 8% back when shopping at certain KOHO retailers
Up to 2% on transportation services, grocers, and eateries
A flat 0.5% cash-back reward on all other items
The KOHO Premium Reloadable Prepaid Mastercard allows one free international ATM withdrawal each month and no foreign exchange fees. However, as a cardholder, you must pay a $9 fee each month and an $84 fee every year. If you're considering applying for the card to utilize its benefits, you can take advantage of a free 30-day, no-obligation trial.
The KOHO card is prepaid, but you can access its credit-building services for an additional $10 monthly fee. It's a worthwhile investment for anyone seeking help rebuilding or establishing credit. The card issuer will report bill payments to the credit bureaus.
You can also take advantage of the features within the KOHO app. Resources on the app will help you manage your finances better by tracking your spending and creating budgets. The KOHO app provides on-demand financial coaching from the card issuer's certified in-house financial expert.
If you want a credit card that lets you borrow money, the KOHO Premium Reloadable Prepaid Mastercard is not ideal. It's prepaid, so there's no money to borrow.
The Plastk Secured Rewards Card offers several benefits, from welcome offers for new cardholders to financial education resources. Since it is a secured card, you must put down a minimum deposit of $300. The maximum deposit amount is $10,000.
The secured card holds a relatively high interest rate but not as high as many other cards for bad credit. Depending on your credit card application and eligibility status, you will pay about:
17.99% interest for purchases
21.99% for cash advances
A downside to the established interest rates involves late payments. If you fail to make two minimum payments within a calendar year, the interest rates will automatically shift to the default 29.99%.
You might consider applying for this credit card for its attractive welcome offers. When you get a secured card approval, you won't accrue interest on any purchase for your first three months as a cardholder.
You will also earn an introductory bonus of 5,000 reward points worth $20, which you can redeem for items after the initial three months. Afterward, you will earn 250 reward points for every $1 spent. Refer a friend to the Plastk Secured Credit card and receive 1,250 reward points worth $5.
The Plastk Secured Rewards Card has its benefits for a price. As a cardholder, you would be responsible for paying $120 annually. The total cost breakdown equals a $48 yearly payment and a $6 monthly fee.
You will have additional fees if you participate in Plastk Sentinel, the credit card company's subscription service. For a flat $15.99 fee each month or a yearly $149.99 payment, you can access your complete Equifax credit report. The subscription also includes credit monitoring, financial education, and daily alerts.
Home Trust No Fee Preferred Visa Rewards Credit Card
Another Home Trust credit card for Canadian residents with bad credit is the Home Trust No Fee Preferred Visa Rewards Credit Card. As the name suggests, this credit card has no annual fee. Instead, you can save your money and earn 1% cash back on every eligible purchase with no limit.
The money-back rewards program for Home Trust No Fee Preferred Visa isn't like most other rewards programs. You can only redeem rewards points as statement credits, not cash.
Unlike the Home Trust Secured Visa, the Home Trust No Fee Preferred Visa is an unsecured credit card. It's perfect for rebuilding or establishing credit while earning rewards. Cardholders can also enjoy using the card without worrying about foreign exchange fees on any purchase they make out of the country.
If you reside in Canada but travel out of the country often, the Home Trust No Fee Preferred Visa is a good credit card to have in your wallet. Over 200 countries accept this credit card as a secure payment.
Due to its multiple security protections, the card issuer keeps cardholders safe when shopping. Purchase Security is one of those protections. It insures qualifying goods for three months against damage or theft. Other protections include:
Chip card security
Visa Zero Liability
Verified by Visa
The interest rate for this credit card is 19.99% for purchases and cash advances. You can add the card to an Apple Pay, Samsung Pay, or Google Pay account for contactless payments through your mobile device. You can also use your mobile device to manage your Home Trust Visa account online, including paying bills and viewing transactions.
To qualify for this credit card, you must have an annual income minimum of $15,000. Applicants must also have established credit histories in Canada and be of majority age within your province. Unfortunately, Quebec residents are ineligible for the Home Trust No Fee Preferred Visa Rewards Credit Card.
One of the best credit cards for bad credit with low rates and no security deposit is the Capital One Low Rate Guaranteed Mastercard. The card offers a low interest rate of 14.90% for purchases and balance transfers and a slightly higher rate of 21.90% for cash advances.
This unsecured credit card does not offer rewards or introductory offers and requires a $79 annual fee. This yearly fee is the highest that Capital One charges Canadian credit card holders. Still, you can take a lower $59 annual fee and interest rate of 19.98% with the Guaranteed Mastercard.
The affordable interest rates and high approval rates make the Capital One Low Rate Guaranteed Mastercard suitable for anyone who wants to improve their low credit score. If you cannot get an unsecured card due to a low credit score, you will still likely qualify for the secured Mastercard.
The Capital One Low Rate Guaranteed Mastercard is ideal if you want to build for your future. Since the company reports all card payments and missed payments to the top credit bureaus, you can quickly establish a positive credit history. Because the card issuer helps people with bad credit boost their scores, cardholders are more likely to get approvals for loans, housing rentals, and mortgages with their new credit status.
The benefits of using this credit card are plentiful. With it, you can receive:
Price Protection Services
The credit card comes with security features to prevent unauthorized transactions. With Capital One's Zero Liability protection, you are not liable for fraudulent charges, which helps protect your funds and credit history.
If you are a traveller, having travel insurance for your adventures is crucial. With the Capital One Low Rate Guaranteed Mastercard, you can also enjoy everything from car rental collision waivers to carrier travel accident insurance. If you lose your card during your travels abroad or within your province, you can get an emergency card replacement through Mastercard Global Service.
Eligibility for the Capital One Low Rate Guaranteed Mastercard includes Canadian residency and your province's legal age. Applicants must not have a current Capital One credit card, a pending application, or an older Capital One card with an adverse credit history.
How to Check Your Credit Score?
Before applying for the best credit cards for bad credit, you must know your credit score. You can learn your score by seeking information from one or both of Canada's top credit reporting agencies or a third-party institution.
Ideally, it's best to request your credit report from all major agencies because their scores may differ. Your credit report for each bureau will have your personal information, such as your existing and previous credit accounts, current used and unused credit amounts, open and closed accounts, and debts in collections.
With reports from multiple agencies, you can compare the information and identify discrepancies. Depending on which credit reporting agency an organization uses to determine your creditworthiness, the varying credit scores could lead to credit approval or denial.
Equifax is a major credit reporting bureau reporting people's spending and borrowing habits in Canada and other countries. The privately owned company manages roughly 800 million consumer records.
The agency focuses on consumer credit services. It collects information about Canadian citizens to sell data to creditors. Equifax receives its data through paid and unpaid sources and uses an unknown algorithm to determine a person's credit score.
As a Canadian, you can easily access your Equifax credit report and score if you sign up for the agency's free online subscription. If you choose not to have a subscription, you can formally request a hard copy of your credit report and receive it by mail within five to ten business days.
TransUnion is another credit reporting bureau that services Canada. Like Equifax, TransUnion collects information about people's credit history and activity. For this agency, which goes by VantageScore 3.0 scores, a good credit score is between 720 and 780.
TransUnion will provide you with a free copy of your credit report each year, but you must request it through the company's website. Quebec residents will find their TransUnion scores in their credit reports, which TransUnion calls "consumer disclosures."
If you live in another province, you can only see your TransUnion credit score by signing up for the bureaus' subscription service for credit monitoring. The subscription costs $24.99 a month, and it provides email notifications about credit score changes, personalized debt analysis, and up to $50,000 of identity theft insurance.
Third-Party Financial Institution
You don't have to go through a credit reporting bureau to see your credit score. Some financial institutions, including Scotiabank, BMO, RBC, and CIBC, will let you see your credit scores for free. They provide credit scores to customers who use their online banking platforms and apps.
Facts to Remember About Bad Credit and Credit Cards
Though credit cards have perks, having one is not always the best way to build credit and manage finances. Handling a credit card properly includes spending less than 30% of your credit limit at any time and paying monthly minimum payments on time. Those steps could help you build your credit history and boost your credit score.
However, using credit cards for small purchases is not the best idea. Sometimes, it is better to use cash or a debit card linked to a bank account to pay minor bills or purchases. If you use a credit card for most items and services, you could easily overspend and pay additional costs due to accrued interest fees.
Responsible credit usage will improve your access to housing, vehicle financing, and other financial services. Still, it might not be worth putting yourself in further debt if you cannot use your cards wisely. It is not about how much you earn but how you use your available credit. Even though there are options for getting personal loans and even mortgages with bad credit, it's always the best course of action to ensure that you can handle the debt load before taking them on.
Consider these tips before applying for one of the best credit cards for bad credit:
Only use credit cards to pay for items and services you can afford to purchase with cash.
Remember that using credit cards responsibly will help you establish good spending habits, so set payment reminders, use financial resources from the card issuer, and practice self-control.
Pay off the card balance in full every month to prevent interest from accumulating.
Pay the minimum amount if you cannot pay off the full monthly balance.
Missing a payment will hurt your credit score.
Applying for a Credit Card with Bad Credit
When you are ready to apply for a credit card without good credit, start researching your credit score. Send a request to Equifax and TransUnion, or go through a third-party financial institution. The more information you have about your credit history, the easier it will be to find a worthwhile credit card that caters to individuals within your credit score bracket.
You should also take time to explore your options. It might not be best to select the first secured, unsecured, or prepaid card you find. Every time you apply for a secured or unsecured credit card, the hard credit score inquiries the application generates could hurt your credit score.
When researching cards, consider their interest rates, perks, and fees. Send in one application at a time and wait for approval to avoid further damage to your credit report.
Finding the best credit cards for bad credit can be challenging. Many Canadians struggle to determine which secured, unsecured, and prepaid credit cards are the most suitable for their lifestyle. With Insurdinary, finding the perfect card is simple.
Insurdinary is one of the top resources for Canadian insurance products and financial offers. Our user-friendly website can help you find numerous credit cards and compare their rates, benefits, fees, and other features. Insurdinary also makes it easy to apply for financial services through our platform online or network of licensed financial institutions. Now that you know more about the best credit cards for bad credit, let Insurdinary help you find the one that's right for you. Complete our simple online quote form or contact us for more information.