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What do I need to know about secured credit cards?

A secured credit card may be a good option to help you build or improve credit, especially when you are new to Canada and don't have a credit history. Research the card and company carefully before making a decision.

You may want to get a secured credit card, if:

• You have no credit history.
• You have no Canadian credit history (new to Canada).
• You had credit problems in the past and want to improve your credit rating.
• You recently filed for bankruptcy.

Security Deposit

To get a secured credit card, you need to make a security deposit with the credit lender. This may be cash, furniture or something else that the company will accept. This may also be called "collateral. The security deposit acts like your credit limit on the card.

Generally, your credit limit is the same or more than the value of your deposit. In most cases, you can invest your deposit in securities such as GICs, RRSPs or term deposits.

If you don’t make your credit card payments, the credit issuer may deduct money from your deposit.

If you use the card for a while and pay your bills on time, you can build a positive credit history. With good credit you may be eligible for a regular credit card and you can get your deposit back. 

To know more about how credit reports work read the Understanding Credit Your Report and Credit Score Guide from the OCLF.

Things to Know

• Secured credit cards normally have a higher interest rate than unsecured cards.
• Secured credit cards usually have monthly or annual fees. Also, you might have to pay service fees for some transactions.
• Make sure your deposit is insured with the Canada Deposit Insurance Corporation (CDIC) or a provincial deposit insurance corporation. This protects you if the financial institution holding your deposit declares bankruptcy.
• Beware of secured card offers from unknown institutions or issuers outside Canada. Contact the Financial Consumer Agency of Canada for assistance.
• Avoid offers for secured cards that do not have a recognized brand name such as VISA, MasterCard or American Express. These cards may only be accepted at a small number of stores or may require you to make purchases from a specific catalogue.
• Read and make sure you understand all the terms and conditions associated with a secured card before you accept it.

For More Information

• Secured Credit Cards - How to get one, interest rates, and how to choose the right card for you. From the Financial Consumer Agency of Canada.
• Which Credit Card is Right for You? - Information about getting and using credit cards, and how to decide what type of credit card is right for you. From the Financial Consumer Agency of Canada.
• Frequently Asked Questions About Your Credit Score - Explains what a credit score is and how it is calculated. From Equifax.
• Understanding Credit - How credit cards work and how to use credit wisely. From the Canadian Bankers Association.

This article contains information from the Financial Consumer Agency of Canada.