Secured credit cards are an excellent option for Canadians struggling with poor credit or newcomers looking to build credit from scratch. These financial tools require an upfront security deposit (hence the term “secured”), acting as both your credit limit and collateral if you fail to make payments. Once your deposit is in place, your card will function identically to a traditional credit card and can help improve your credit score through positive spending habits. To learn more about secured credit cards in Canada, keep reading.
How Secured Credit Cards Work in Canada
To activate your secured credit card, you’ll need to provide the issuer with a security deposit. The sum of your deposit varies by issuer and can sit anywhere between a few hundred to a few thousand dollars. Once you establish this deposit, you can start using your secured credit card like a traditional credit card; borrowing funds and paying them off by the balance due date.
Your credit limit is typically equal to or higher than your security deposit. In most cases, the deposit and limit are set at similar amounts to give the issuer collateral to dip into if you miss any payments. That said, don’t rely on this security net. Making on-time payments helps you build or rebuild your credit, which is often the main purpose of pocketing a secured credit card in the first place.
Once you practice enough positive spending habits to bulk up your credit score, you may be eligible for an unsecured credit card. If you decide to make this switch, in most cases, your security deposit will be returned to you when you close your secured account.
Benefits of Secured Credit Cards for Canadians
There are several benefits to owning a secured credit card in Canada.
Primary perks include:
- Easy approval for those with poor or no credit
- Credit building/rebuilding for those with damaged or non-existent credit
- Select rewards on certain secured options, awarding you for making eligible purchases
Who Should Apply for a Secured Credit Card
Since the main criterion to getting a secured credit card is to supply an issuer with a security deposit, if you have the money, they’re extremely easy to qualify for. Simple approval makes secured credit cards ideal for those with poor or no credit. Low or non-existent credit often prevents Canadians from qualifying for unsecured credit cards that heavily factor credit scores into the application process.
According to the Financial Consumer Agency of Canada, you might benefit from a secured credit card if you:
- Don’t have a credit history
- Need to rebuild your credit
- Have recently filed for bankruptcy
- Are a newcomer to Canada
Since secured credit cards don’t require a credit history, they also make solid starter cards for students and young adults who have yet to establish a sturdy financial foundation for their future.
Tips to Improve Credit with a Secured Credit Card
By now, you understand just how beneficial secured credit cards are for building credit. Still, you might be curious about how to use your secured credit card effectively to establish or improve your financial footprint.
Building or rebuilding credit with a secured credit is easy, simply:
- Make on-time payments to your issuer
- Keep your credit utilization rate low (typically below 30%)
- Limit credit and loan applications; too many applications at once implements several hard credit checks, which lower your credit score
Depending on the issuer, your credit habits are reported to one of two or both credit bureaus in Canada: Equifax or Transunion. The credit bureau then creates a credit report based on those habits, which determines your credit score.
Essentially:
Timely payments and well-managed balances = A better credit score
The Cost of a Secured Credit Card
As you know, secured credit cards require a security deposit, set by the issuer. Many high-value secured credit cards also come with monthly or annual fees, especially if they have specialized credit-building features, perks, or rewards. It’s also worth noting that secured credit cards tend to have relatively higher interest rates if you fail to pay your balance.
Secured Credit Cards vs Unsecured and Prepaid Cards
With so many card types at your fingertips, it’s easy to get confused. In this section, we’re going to highlight key differences between secured credit cards, unsecured credit cards, and prepaid cards.
Here’s a quick overview of the comparisons we’ll be making:
Secured Credit Cards | Unsecured Credit Cards | Prepaid Cards | |
How they work | You provide a security deposit that guides your credit limit; you borrow against it and repay monthly | You borrow against a credit limit based on creditworthiness; no deposit required | You load funds onto the card and spend only what you’ve loaded; no borrowing |
Credit check | Varies — many issuers do no hard check. | Yes | No |
Security deposit | Yes | No | No, but you must load funds before spending |
Credit builder | Yes | Yes | No |
Card fees | Yes, with no-fee options | Yes, with no-fee options | May include activation, monthly, or reloading fees |
Interest | Typically higher | Yes, with many low and no-interest options | No |
Rewards and perks | Yes, but more limited | Often, can be generous depending on the card | Rarely |
Best for | Newcomers, first-time credit users, students, or anyone looking to build/rebuild credit | Canadians with established credit looking for rewards, higher limits, and lower borrowing costs | Budgeters, teens or anyone looking to spend without risk of debt or give a gift to another person |
Secured Credit Cards vs Unsecured Credit Cards
Unlike secured credit cards, unsecured or traditional credit cards don’t require an upfront security deposit. Instead, applicants usually need to have a minimum credit score and meet income requirements to qualify.
Unsecured credit cards have credit limits set by the issuer, which can increase with good credit behaviour or raised income.
Traditional credit cards often feature better rewards and perks, as well as lower fees and interest rates.
Secured Credit Cards vs Prepaid Cards
Prepaid cards avoid borrowing altogether. Your balance is based on how much money you load onto the card.
These cards are great for budgeting but not for credit building. Since you aren’t borrowing any money, there’s no credit behaviour to report to credit bureaus.
While these contenders avoid interest charges, they often come with activation, reloading, or monthly maintenance fees.
How to Apply for a Secured Credit Card
If you’re ready to apply for a secured credit card, simply:
- Compare cards from various issuers, noting their fees, features, and fine print.
- Navigate to the issuer’s website to begin the application process for your selected card.
- Fill out an application and be ready to provide both personal and financial information, such as your date of birth and income.
- Review your application and hit submit.
Conclusion: Why Secured Credit Cards Matter
Secured credit cards were designed for Canadians who are either new to credit or trying to recover from a poor credit score. Having strong credit has implications on your future finances like taking out a mortgage, signing a rental agreement, or applying for any kind of loan. After you put down a security deposit, you can start using your secured credit card like a traditional credit card. Make on-time payments and keep credit utilization low to boost your credit score. Once you’ve inflated your score efficiently, consider unsecured credit cards for better rewards, perks, and interest rates. We all start somewhere; build or rebuild your credit score with a secured card and secure your financial future today.
FAQs
Do I get my security deposit back if I close my secured credit card?
In most cases, yes. As long as your account is in good standing and your full balance is paid off, your issuer should return your security deposit. Always check your credit card agreement to be sure. If you have an outstanding balance on the card, then the issuer could deduct what you owe them before returning the remaining balance.
What’s the main difference between a secured credit card and an unsecured credit card?
Secured credit cards are easier to qualify for and work based off of a security deposit, which typically influences your credit limit and acts as collateral for the issuer to draw on if you miss payments. Unsecured credit cards are trickier to qualify for without good credit. They don’t require a security deposit. Instead, the credit limit is set by the issuer based on your credit score, income, and credit history.
What’s the main difference between a secured credit card and a prepaid card?
Prepaid cards don’t borrow money. The money on a prepaid card comes from preloaded funds and spending behaviour isn’t reported to credit bureaus. With a secured credit card, you’re borrowing against your security-deposit-backed limit and your spending habits are reported to credit bureaus. Basically, a prepaid card is good for budgeting, whereas a secured credit card is ideal for credit building.
When do I know to switch to an unsecured credit card?
You can switch to an unsecured credit card when your credit has improved, which can take several months or years, depending on your situation.