As the saying goes, past behaviour is the best indicator of future behaviour. And in that spirit, your credit history is what lenders use to determine your credit worthiness. In other words, they use your past financial history to judge how likely you’re able to repay your debts in full and on time.
If you have a poor credit history or no credit at all, then lenders either don’t trust that you’ll be timely and consistent in your repayments, or they have nothing with which to assess your risk—and lenders aren’t about to give you the benefit of the doubt.
So, how do you go about building (or rebuilding) your credit history? There are lots of credit cards for bad credit, most of them being secured credit cards. Secured credit cards differ from other credit cards in that they require you to provide a security deposit that’s equal to or greater than the credit limit. Here are three of what we think are thebest credit cards in Canada for people with bad or no credit:
Home Trust No Annual Fee Secured Visa Card
- No annual fee
- 19.99% interest rate
- Your credit limit is set at the amount of the security deposit you put down
- Applicants who have been discharged from bankruptcy are eligible to apply at any time
If you’re looking for a credit card with no annual fee but you don’t qualify for an unsecured credit card, then theHome Trust Secured Visa Card might be a good option for you. This card requires you to pay a security deposit equal to the amount of the credit limit you’d like. You can put down as little as $500 and as much as $10,000. This provides you with the opportunity to build your credit rating up at a rate that you’re comfortable with. If you want to use the card for small purchases to slowly regain creditors’ trust but you still want the freedom to buy those bigger ticket items, this card lets you do just that.
Alternatively, if you like the credit limit this card offers but would like a lower interest rate, you have the option to apply for the Home Trust Secured Annual Fee Visa Card. This card comes with an interest rate of 14.9% and an annual fee of $59, which you can choose to pay at $5 per month. This is an excellent alternative because applicants are just as likely to get approved for this card as they are for the no annual fee version, and yet the interest rate is five percentage points lower. This card would be the preferred choice for those looking to re-establish their credit rating and who trust themselves to not often carry a balance.
The Affirm MasterCard
- Annual fee of $84.00 ($7/month)
- Interest rate of 29.99%
- No security deposit required
The Affirm MasterCard is an unsecured credit card so it’s an excellent option for those who have bad credit but don’t want a card that requires a security deposit. It comes with a $3,000 credit limit and has a $7 monthly fee. The idea here is that they’re taking a bigger risk in offering a true line of credit to individuals with low credit ratings, so they’re asking for a fee to be paid monthly and not annually as a way to reduce this risk. Another way Affirm manages its risk is by requiring you to make a minimum monthly payment on your outstanding balance: either $30 or 4% of your balance—whichever is greater.
This card has an interest rate of 29.99% on all purchases and doesn’t have a cash advance option. This interest rate is extremely high and is designed to encourage users to rarely carry a balance, if ever at all. Since the whole purpose of getting a credit card for bad credit is to slowly regain the trust of lenders, it’s very important that you pay off your balance in full and on time with this card because with the combination of a $3,000 credit limit and a 29.99% interest rate, it’s very easy to slip into debt. There are no administration or pre-payment fees and you can use this card anywhere MasterCard is accepted. Once you’ve established a good rapport with Affirm and have built up your credit history, they can even re-evaluate and consider granting you an increased credit limit if that’s something you want.
Peoples Trust Secured MasterCard
- $69.60 annual fee ($5.80/month; collected monthly)
- 12.99% interest rate on purchases
- 24.5% interest rate on cash advances
The Peoples Trust Secured MasterCard is a secured credit card with an incredibly low rate of 12.99% on all purchases. This is a good option for those who are trying to build a strong credit rating but may carry a balance every so often. However, this card requires you to make a minimum monthly payment on your balance: the greater of $10 or 3% of your outstanding balance. If you don’t meet this minimum requirement, the interest rate will go up to 24.5% on your next statement so it’s important to keep up with payments.
Virtually everyone who applies for this card is approved, so it’s an ideal card for those who have been discharged from bankruptcy, or have a rocky financial past. The only requirement besides being a Canadian resident is that you have a verifiable source of income. Similar to the Affirm MasterCard, this card’s annual fee of $69.60 is charged monthly at $5.80/month. Finally, the security deposit that you’re required to put down can be as little as $500 and up to a maximum of $25,000, which most credit cards don’t even come close to.
Source: RateHub.ca by Bassel Abdel-Qader January 31, 2016