Have you experienced a significant decline in your credit score or lack a credit history? If so, getting approved for traditional loans at low rates will be challenging, if not impossible. To earn the trust of lenders, you’ll first need to rebuild your credit (especially if you’ve filed for bankruptcy). A secured credit cards in Canada help you achieve that goal.
Secured credit cards are a proven tool for repairing or establishing credit history. They’re accessible, practical and user-friendly. As Licensed Insolvency Trustees, we fully endorse secured cards and teach clients how to use them in our financial counselling sessions. In this guide, we’ll explore how secured credit cards work and show you some of the best ones available in Canada.
What is a secured credit card?
A secured credit card is a type of card that requires you to put down a cash deposit before using it. This deposit acts as collateral for the lender and determines your credit limit. For example, if you contribute $500 as your security deposit, you can only charge purchases to your card up to this amount. To spend more, you must deposit more money into your account.
Most lenders will not risk approving you for a credit account without security if you have a poor credit score. That’s why secured credit cards are the perfect tool if you’re aiming to improve your credit standing. The cash deposit, which functions as your credit limit, protects lenders (and yourself) from the risk of default. If you fail to repay your balance, the lender will use your deposit to cover the amount owed.
How does a secured credit card work?
A secured credit card works similar to a regular credit card. You can use it to pay bills, purchase goods and services, and pay down the balance at your discretion, subject to a minimum monthly payment. If you carry a balance, interest charges will apply. Most secured cards also allow balance transfers and cash advances.
As with a regular credit card, you must make minimum monthly payments to keep your account in good standing. If you miss payments, your credit card issuer can keep your deposit to cover the amount owing, refund you the balance and close the account.
How does a secured credit card help to build credit? The answer is your card issuer reports your payments to credit bureaus like Equifax and TransUnion. Making on-time payments and keeping your balance low will help you restore your credit over time, just like with any credit card.
When you shut down your account or upgrade to an unsecured card, your lender will refund your deposit plus any interest earned. You must pay off your balance in full to get your deposit back.
Unsecured vs secured credit card
On the surface, both secured and unsecured credit cards function the same way. However, there are some key differences between the two, as explained below. Understanding these differences will help you set realistic expectations when applying for and using a secured card.
Secured credit cards:
- Require a cash deposit
- Typically don’t offer perks or rewards
- Usually have higher interest rates
- Typically don’t require a hard credit check
- Accessible to borrowers with low credit scores
- Low credit limits
- Credit limit increases when the user adds more funds to their account
Unsecured credit cards:
- No cash deposit required
- Usually offer perks and rewards
- Lower interest rates are available on select cards, as well as zero or low-rate introductory offers
- Require a hard credit check
- Not available for borrowers with poor credit scores
- Higher credit limits
- Credit limit increases at the card issuer’s discretion
How to use a secured credit card to improve your credit score
A secured credit card can help boost your credit score—but only if use it responsibly. Follow the steps below the start on the right path:
Step 1: Choose the ideal card
When examining your options, remember that lenders are less concerned about your income or how much debt you owe when you apply. Getting approved for a secured card is almost a guarantee, so don’t worry about meeting the qualification requirements. Instead, focus on the following factors when assessing secured cards:
- Minimum and maximum deposit. Ensure you can afford the minimum deposit, as this payment is required upfront. Also, inquire about the maximum deposit to confirm the card can accommodate your spending habits.
- Annual fee. Some cards charge a yearly fee and offer lower interest rates, while others eschew the fee for higher rates. If you anticipate carrying a balance, stick with the annual fee option to avoid a slew of interest charges. Review the cardholder agreement to understand the other credit card fees you may have to pay.
- Interest rate. Secured credit cards often charge steep rates. Some card issuers assign the same rate for all users, regardless of their credit score. Others charge higher rates for users with lower credit scores and vice versa.
- Credit reporting policy. Does the card issuer report your payment history to Equifax and TransUnion? Ideally, you want them to submit to both credit reporting agencies to give lenders a more accurate picture of your credit profile.
The ideal secured credit card has no annual fee and a minimum deposit that you can afford. With that in mind, look at cards issued by a financial institution you plan to do business with for the long term. Issuers typically review your payment history after six months or longer. They may upgrade you to an unsecured card if you’ve kept up with your payment deadlines.
Step 2: Provide your security deposit
Before you begin your secured credit card application, ensure you have enough funds saved for your cash deposit. The card issuer won’t allow you to use your card until you’ve paid this amount, so be prepared beforehand. Don’t worry if you cannot contribute a significant amount—you can add extra funds later to increase your credit limit.
Step 3: Use your card for purchases and bill payments
Once your account is set up, use your secured card to pay for groceries, utility bills, streaming subscriptions and other goods and services as you see fit. Review your budget and decide what items to cover using the secured card. You’ll need to do this routinely to establish a positive credit history.
Avoid charging your card more than you can afford. The last thing you want is to undo months of hard work by paying late or inflating your credit utilization ratio.
Step 4: Pay on time and keep your balance low
Paying your entire balance by the due date each month is the best way to rebuild your credit score. Under most credit scoring models, payment history accounts for the bulk of your credit score, usually around 35%. So, consistently paying on time will pay off over the long run.
Strive to maintain a modest balance, too. In other words, don’t max out your card just because you can. Like payment history, credit utilization has a massive effect on your credit score, so it’s worth paying attention to. Many financial planners recommend keeping your credit utilization below 30%. So, if your credit limit is $1,000, avoid carrying a balance that exceeds $250. If you routinely hit your credit limit, deposit more funds into your account—doing so automatically lowers your credit utilization ratio.
Step 5: Monitor your credit score
Review your credit score periodically while using your secured card to ensure you’re making progress. If it’s gradually rising, that’s a good sign. If not, you may need to be more patient or make some strategic adjustments, such as carrying a lower balance from month to month. Remember: even a single late payment can cause substantial damage to your credit score.
How fast will a secured credit card help you build credit? The period varies from person to person, but it’s possible to see meaningful results in as little as one year. The most crucial ingredient for swift success is consistent on-time payments.
Top secured credit cards in Canada
Choosing a secured credit card that aligns with your budget and spending habits is essential. To help, we’ve compiled a list of top secured credit cards in Canada with brief reviews.
David Sklar & Associates is not affiliated with these providers and does not receive compensation for featuring them. This information is for educational purposes only, and we encourage you to review the terms and conditions before applying, as we are not responsible for any financial decisions or outcomes.
Secured NEO Mastercard
- Annual fee: $60
- Purchase interest rate: 19.99% – 29.99%
- Cash advance interest rate: 22.99% – 31.99%
- Minimum deposit: $50
Neo Mastercard Details:
The Secured NEO Mastercard is an excellent option if you’re not ready to commit to a hefty security deposit and enjoy collecting rewards for your spending. NEO guarantees all applicants, and there’s no hard credit check to pass, so getting approved is a cinch. You only need a $50 deposit to open your account, and the maximum credit limit is $10,000. The interest rates NEO assigns to your account depend on your credit score and other factors.
There’s a $5 monthly fee for using the card, which equates to a $60 annual cost. While some users may consider this a steep price, NEO offers a cashback rewards program, a rare perk among secured credit cards. You earn 2% for every dollar spent on gas and groceries, plus 0.5% on all other spending when you have $3,000 in your account. In addition, you earn additional rewards when shopping at thousands of NEO partner brands across Canada. You can upgrade to NEO Premium for an extra fee to enhance your cashback rate and unlock more benefits.
Our take: The Secured NEO Card is a solid choice if you’re looking to rebuild your credit with a modest cash deposit and collect cashback. However, given the high interest rate, it’s not the best candidate if you routinely carry a balance.
Home Trust Secured Visa
- Annual fee: $0 or $59
- Purchase interest rate: 19.99% or 14.90%
- Cash advance interest rate: 19.99% or 19.80%
- Minimum deposit: $500
Home Trust Secured Visa Details:
The Home Trust Secured Visa is touted by many financial publications and critics as one of Canada’s best secured credit cards. It’s a no-frills card with no annual fee, making it cost-effective for anyone to build their credit. You can manage your account entirely online, and the card is compatible with digital wallets like Apple Pay and Google Pay.
The interest rate is also reasonable, at 19.99%—and this rate applies to cash advances, too. While that may seem high, it’s the standard rate in Canada for unsecured credit cards and cheaper than many of its competitors. The maximum cash deposit is quite generous at $10,000, perfect for households with large budgets.
The card’s big downside is the lack of rewards and perks. It’s also not available to Quebec residents. A low-interest rate version of the card is available, which charges a $59 annual fee. However, if you don’t carry a balance from month to month, it’s hard to justify the extra cost, considering the lack of benefits.
Our take: Use the Home Trust Secured Visa if your sole focus is rebuilding your credit and keeping your costs low. It’s hard to argue against a no-fee card with a $10,000 credit limit, provided you don’t care for perks and rewards.
Capital One Guaranteed Secured Mastercard
- Annual fee: $0
- Purchase interest rate: 21.90 – 29.9%
- Cash advance rate: 21.90 – 29.9%
- Minimum deposit: $75 – $300 (estimated)
Capital One Guaranteed Secured Mastercard Details:
The Capital One Guaranteed Secured Mastercard is a well-known brand in Canada, offering fast approvals for anyone legally allowed to use credit. The lack of an annual fee is a key selling point, making the card a solid choice if you’re on a strict budget. The interest rate is high compared to most cards, with rates assigned to users based on the strength of the credit profile and other factors.
Capital One is tight-lipped about its cash deposit requirement (the company provides no details on its website). However, various online financial publications state that the amount is $75 or $300. According to these same publications, the maximum deposit is $2,500.
While the card doesn’t offer a rewards program, it does come with some perks. These include common carrier insurance, baggage delay insurance, car rental collision insurance, and extended warranty. A notable benefit is price protection coverage, a rarity even among regular credit cards.
You can manage your account using Capital One’s handy app, which includes tracking your credit score. Capital One has robust card security features that notify you of suspicious activity in your account and send alerts for payment due dates. Customer support is available by phone 24/7, through live chat, and self-serve options.
Our take: The Capital One Guaranteed Secured Mastercard is a good choice if you hate paying annual fees and want access to some of the perks typical credit cards provide. However, the maximum credit limit is relatively low compared to other secured cards, so it’s not ideal if you’re a heavy spender.
TD Secured Credit Card
- Annual fee: $29
- Purchase interest rate: 27.24%
- Cash advance interest rate: 29.49%
- Minimum deposit: $300
TD Secured Credit Card Details:
The Big Five banks don’t typically specialize in secured credit cards. However, TD is one exception to this rule (the other being BMO), offering the TD Secured Credit Card.
This card works differently than your typical secured card because you have to link it to your TD savings account. In other words, the money in your savings account acts as collateral. You need a minimum of $300 in your account to qualify for the card, and the maximum security deposit is $5,000.
The TD Secured Card offers a cashback program, which is a nice bonus. You earn 3% and 2% cashback on your choice of spending categories, which you can change each quarter. The cashback rate for all other purchases is 1%.
Our take: TD’s Secured Card is reasonably priced at $29 per year, and for that fee, you can collect cashback from a flexible rewards program. However, the interest rate is quite steep, so it might be one to avoid unless you pay off your account in full each month. You may find the card appealing if you’re a TD customer and prefer to conduct your daily banking with that company.
Secured Neo World Elite Mastercard
- Annual fee: $125
- Purchase interest rate: 19.99% – 26.99%
- Cash advance interest rate: 22.99% – 23.99%
- Minimum deposit: $200
Secured Neo World Elite Mastercard Details:
The Secured NEO World Elite Mastercard is essentially the elite version of the Secured NEO Mastercard. With a higher annual price tag and a more lucrative rewards program, it’s geared toward higher-income households. Like its more affordable counterpart, approval is guaranteed approval, and no hard credit check is necessary to open an account.
The cashback rewards program works as follows:
- 5% on groceries:
- 4% on bills
- 3% on gas
- 1% on everything else
Additional benefits include an extended warranty, purchase protection coverage, auto rental insurance, and a comprehensive travel insurance package. As with the standard Secured NEO Mastercard, you can upgrade to a premium account to access more perks and boost your cashback earn rates. The maximum credit limit is $10,000.
Our take: This is a solid choice for a secured card if you enjoy top-tier credit cards’ lavish perks and rewards and want plenty of credit room. However, you’ll need a minimum personal income of $80,000 ($150,000 for a household) to qualify.
Secured Tims Mastercard
- Annual fee: $0
- Purchase interest rate: $20.99% – 26.99%
- Cash advance interest rate: $22.99% – 27.99%
- Minimum deposit: $50
Secured Tims Mastercard Details:
The Secured Tims Master Cards is one of two cards offered by Canada’s most popular coffee brand. Launched in July 2023 in partnership with NEO Financial, this card provides a path toward a healthy credit score and a way to earn rewards on your everyday spending.
You collect points on all your spending, with bonus earn rates on groceries, gas, EV charging, transit, and, of course, Tim Horton’s purchases. You can track your points by downloading Tim Horton’s app. For convenience, you can add your Secured Tims Mastercard to your Apple or Google wallet.
There’s no annual fee or hard credit check to pass, so you’re guaranteed approval. The minimum deposit is only $50, making it easy to start building your credit score. Over time, you can increase your credit limit to $10,000, which is on the high end of secured cards in Canada. The card offers an extended warranty and purchase protection, too.
Our take: This card is worth considering if you want to avoid the annual fee and like collecting rewards, including those from your daily Tim Horton’s coffee run. The rewards program isn’t as lucrative as other secured cards, and the interest rate is pretty high, two notable drawbacks. However, the card’s features and benefits at no cost are still enticing.
BMO Boost Secured Credit Card
- Annual fee: $25
- Purchase interest rate: 26.24% (variable)
- Cash advance interest rate: 31.49% (variable)
- Minimum deposit: $300
BMO Boost Secured Credit Card Details:
BMO is one of the few major banks in Canada that offer a secured credit card. However, you must be a BMO customer to qualify and need to visit a BMO branch in person to open an account. The BMO Boost Secured Credit Card requires a minimum deposit of $300. Once your account is up, you’ll get instant access to your credit report and track your financial progress in real-time.
BMO’s secured credit card doesn’t offer a rewards program. However, there are a few insurance packages and warranties: cell phone protection, extended warranty, car rental coverage, and travel assistance. The annual fee is low at only $25.
Our take: Aside from some insurance products, the BMO Boost Secured Credit Card is a no-frills card. While there’s nothing wrong with that, the card still charges an annual fee and some of the highest interest rates among secured cards in Canada. In addition, the interest is variable, which exposes you to the risk of rate hikes. If you expect to carry a balance, you’re better off with some of the other cards on this list.
The bottom line on using a secured credit card to rebuild your credit
Can a secured credit card improve your credit? Absolutely. They’re one of the most practical ways to raise your credit score and, consequently, widen your future borrowing options. Most are easy to qualify for, even if your credit score sits below 500. While you need to provide a cash deposit to open an account, this amount may be a low as $50, depending on the card issuer.
Of course, using your secured card responsibly is vital for success. Always pay your balance on time and keep your credit utilization at a reasonable level. We recommend starting with a low credit limit to avoid overspending. As you make progress, gradually add to your security deposit. Eventually, you’ll graduate to an unsecured credit card.
Rebuilding your credit score starts with getting out of debt. If you’re struggling with credit card debt in Ontario, the Licensed Insolvency Trustees at David Sklar & Associates can guide you down the path to financial recovery. Depending on your situation, there may be several options available to you, not just insolvency. Book you free consultation today to learn how you can finally free yourself from debt.
