Credit Cards for Bad Credit in Canada

Posted on March 5, 2021

If you have bad credit, it likely means your credit score is on the low side as well. Your credit score drops as a result of you having trouble managing your credit, so getting a credit card might seem like a bad choice.

After all, if you have trouble managing credit, why would you want more of it?

Unfortunately, in the modern world, a credit card is practically a requirement to be able to pay for many things. And while it might seem counterintuitive, having a credit card can help improve your credit score.

Let’s look at credit cards for bad credit in Canada, how they can help you improve your credit, and which cards we recommend.

What Are Credit Cards for Poor Credit?

Credit cards for bad credit are cards that make it easy to qualify, even if you’ve had trouble getting cards before.

If your credit report has any issues or your credit score is below a certain threshold, many credit card companies will decline your application. They’re essentially lending you money when you pay for something on credit and they don’t want to take any chances with not getting paid back.

Certain cards have a much lower bar to meet in order to qualify. In some cases, they don’t even consider your credit score. As long as you can meet the rest of their qualification requirements, they’ll approve you for a card.

These cards have other ways of guaranteeing you’ll pay off any balances on the card. The most common way they do this is with a secured credit card.

Secured vs. Unsecured Credit Cards

When a credit card is “secured” it means the card issuer holds some kind of security that guarantees they’ll get their money back. If you don’t pay the balance owing, they can recover it by taking the security deposit from you.

This is similar to a car loan or mortgage on a home. If you don’t make your payments, the car can get repossessed or the bank can foreclose on your home in order to recover their funds.

In the case of a secured credit card, the security is usually a cash deposit. You send the credit card company a lump sum up front and they hold onto that money. If you ever default on your card balance, they can cash the security deposit in and they haven’t lost anything.

It might seem a little pointless to secure a credit card this way. After all, if you have the money to send the card issuer as a deposit, you could just use that money to buy what you need, right?

That’s true but there are other benefits to using a credit card instead of paying cash.

How Using a Credit Card Can Improve Your Credit Score

The main reason you would want to use a credit card this way is that it can help improve your credit score. There are a bunch of factors that affect your credit score, including:

  • If you carry a balance on your credit cards
  • If you’re using all your available credit
  • How long you’ve had different types of credit
  • Whether you make your payments on time
  • The total amount of debt you’re carrying

If you have bad credit, chances are you’ve had trouble with one or more of these factors in the past. The best way to improve your score is to build up a more recent history of NOT doing those things.

In other words, handling credit wisely.

Bad, or no-credit credit cards can help with this in several ways.

Pay Your Bill On Time

First, make sure you pay your bill on time every month. Even a day or two late can negatively affect your credit score so be ruthless about getting the payment in on time.

Remember that online payments through your bank’s website can take a day or two to reach the credit card company as well. Always make the payment a few days ahead of the due date if you pay this way.

Use Your Card

It’s also important to use your card so the credit bureaus see that you’re building up a balance and then paying it off again. If you just let the card sit idle, it won’t have as much of a positive impact on your credit score.

This doesn’t mean you should buy things you don’t need though. Instead, use the card for things you have to buy anyway, such as groceries and gas, and then pay the card off every month.

Pay Off the Entire Balance

Another factor in your credit score is how much of the total credit available to you is used. For example, if you have a credit card with a $1,000 limit, a balance of $950 has a more negative impact on your score than a balance of $500.

To get the most benefit from the card, pay off the entire balance every month. Never just make the minimum payments.

Along the same lines, don’t max the card out. If you have to charge a higher-ticket purchase, pay it off as quickly as possible, even if it’s well before the due date.

How Your Credit Score Affects Your Ability to Qualify

There are two credit bureaus in Canada — Equifax and TransUnion. Banks, credit card companies, and various other financial organizations report certain details about your dealings with these agencies. They use that information to determine your credit score.

When you apply for a credit card, mortgage, loan, or anything else that requires a credit check, the company you’re dealing with gets your credit score from one or the other of the two bureaus (or maybe both).

Your ability to qualify depends on the range your score lands in.

Credit Score Ranges

Credit scores range between 300 and 900 points. The higher your score, the better your credit rating. The scores break down as follows:

Below 560: Poor credit

560 to 659: Fair credit

660 to 724: Good credit

725 to 759: Very good credit

760 and up: Excellent credit

If you fall into the “poor” or the lower range of “fair” credit, you’ll have trouble qualifying for a regular credit card. The minimum credit score for credit card approval in Canada is typically 600. If your score is below that, you’ll need to consider a card designed for poor credit.

If you’re not sure what your credit score is, check your score through the Insudinary website. Knowing your score will give you an idea of what type of card you should consider.

Is Getting a Credit Card a Good Idea If You Have Bad Credit?

We’ve already discussed the reasons that getting a credit card is a good idea if your credit is less than ideal. But aside from the benefits it can have on your credit score, should you consider getting one of these cards?

It comes down to your ability to use the card wisely. If you’re likely to use the card to buy frivolous and unnecessary things, you probably shouldn’t get one. That could be why your credit score is low in the first place.

But if you can use the card wisely and have the willpower to avoid unnecessary spending, it’s a good way to start rebuilding your credit.

Disadvantages of a Credit Card for Bad Credit

There are several disadvantages that you should be aware of about these cards. The credit card companies know you’re in a tough spot and can’t pick and choose your credit card, so some of the fees and costs of using these cards are higher than average.

Higher Interest Rates

Some cards for bad credit have higher interest rates than other cards. This is one of the ways the issuer offsets their risk. By charging higher interest rates, they make more money from all their customers which helps offset any losses they potentially incur.

This is only an issue if you don’t pay off your balance every month though. If you pay it off by the due date, you won’t have to pay any interest at all so it won’t matter how high the rate is.

Annual Fees

You need to pay an annual fee for some of these types of credit cards. The fee gets charged to your card automatically every year.

There are options with no annual fee so it likely doesn’t make sense to choose a card that has one but it depends on what other perks the card offers. You might earn cash-back points or the card with an annual fee might have a lower interest rate (again, only an issue if you carry a balance!).

If the extras are worth the cost of the annual fee, it could make sense to opt for that card over a no-fee alternative.

Monthly Maintenance Fees

Some cards also charge a monthly “maintenance” fee. In theory, this covers things like the cost of issuing your statement but it’s really just another type of annual fee.

It’s just charged monthly instead.

The Best Credit Cards for Bad Credit in Canada

There are several credit cards for bad credit that we recommend. Each of them has advantages and disadvantages so consider which one suits your lifestyle and spending habits the best.

Home Trust Secured Visa Card (Annual Fee)

This Home Trust Secured Visa card is a secured credit card with a $59 annual fee. The interest rate is 14.99% and there’s a minimum $500 security deposit required (which would give you a $500 spending limit). You can deposit as much as $10,000 if you want a high spending limit.

This card is available in all parts of Canada except Québec and the approval rate is over 95 percent. Bankruptcy won’t disqualify you either, provided the bankruptcy has already been discharged.

The main benefit you get in return for the annual fee is a lower interest rate. Keep that in mind if you plan to pay it off every month.

Home Trust Secured Visa Card (No Annual Fee)

The second Home Trust Secured Visa option is very similar to the first one but it has no annual fee. The tradeoff for no fee is a higher interest rate - 19.99%. As we’ve covered several times now, if you pay it off every month, the higher rate is irrelevant.

Otherwise, the features are the same as the first card — a 95% plus approval rating for all Canadians outside of Québec and you can deposit anywhere from $500 to $10,000 as security.

Plastk Secured Visa

The Plastk Secured Visa card is one of the only bad credit cards with any kind of perks. This card lets you earn rewards on every dollar you spend, crediting 1 point per dollar. The points are equivalent to 0.4% cashback reward.

When you sign up for the Plastk card, you’ll get a welcome bonus of 20,000 points (worth $20) as well as a 0% interest rate for the first three months.

Plastk doesn’t require a credit check when you sign up and you can deposit anywhere from $300 to $10,000 in security. Whatever amount you deposit becomes your credit limit. They also provide free credit monitoring for their cardholders which makes it easy to keep tabs on your credit score.

Refresh Secured Visa

The Refresh Secured Visa is another option that doesn’t require a credit check when you apply. While they don’t check your credit, they do report to the bureaus so if you use the card wisely, it will help improve your credit score over time.

The Refresh Visa has a $48 annual fee and a 17.99% interest rate if you don’t pay off the balance. You can deposit as little as $200 and as much as $10,000 to create your spending limit.

Use These Cards to Your Advantage

If you’re dealing with poor credit, these credit cards for bad credit in Canada can help you build it back up. Just make sure you’re smart about how you use them. If overspending got you in trouble in the first place, be careful you don’t repeat those errors.

When you’re ready to switch to another card with more options, check out Insurdinary’s credit card reviews for all the best offers.

If you are re building your credit, then you are looking toward a future of financial well being and security.  Insurdinary is a top rated financial comparison platform that facilitates everything from mortgage quotes, credit card comparisons and health insurance.  Visit us today.  One of our experienced advisors is looking forward to working with you.

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