Best Secured Credit Cards to Build Your Credit Score

A secured credit card works like a regular credit card, except you make a deposit to the lender beforehand in order to get you card. Your deposit determines the credit limit you have available on your card. For example, a deposit of $1,000 will secure you up to $1,000 as a credit limit.

You can make regular purchases with your secured credit card. Each month, pay off your outstanding balance to your lender. If you don’t make your payments, the lender will claim your security deposit against any outstanding charges.

When used properly, a secured card can help you build credit history and your overall credit score. Every regular repayment you make to your lender will be reported to Canada's credit bureaus (Equifax and TransUnion), and this information will be recorded on your credit report. This can help you build positive payment history and increase your credit score over time. This is a great choice for individuals who have no credit history, who are new to Canada, or who need to rebuild their existing credit.

A secured credit card is a great option if you're looking to build your credit, especially if your current credit rating is preventing you from qualifying for unsecured credit cards. If you’re working to re-establish your credit after an insolvency, if you’re new to Canada, or if you’re a young Canadian new to using credit, a secured credit card can help you build your credit history and qualify for more financial products in the future.

There are a few key differences between secured and unsecured cards. A secured card requires you to put down a deposit before accessing your line of credit, while an unsecured doesn't require a deposit. With a secured credit card, your deposit determines your credit limit, and your lender can use your deposit as collateral in case you default on your credit card bill. Because you need to make a deposit, secured cards are often easier to qualify for than unsecured credit cards. They are a great option to consider if you have a low credit score and are looking to build credit history.

Although they seem similar on the surface, there are major differences between secured credit cards and pre-paid credit cards.

Secured credit cards:

• Let you set your credit limit with your deposit, which helps you control your monthly spending

• Can help you build credit history from scratch or rebuild your credit score

• Are accepted by most merchants in the world, both in-store and online

In comparison, pre-paid credit cards:

• Continually need to be loaded with funds once your balance reaches zero

• Doesn't help you build credit history or improve your credit score

• Isn't accepted by all merchants

The minimum deposit you need to make to get a secured credit card all depends on the lender. Many lenders require a minimum deposit of $500. Some lenders, like Refresh Financial, offer a minimum deposit requirement of $200. Capital One's Guaranteed Secured Mastercard has a minimum deposit requirement of $75, which is one of the lowest in Canada.

Like learning a new skill or getting in shape, building credit takes time. If you're building your credit from scratch, you'll need at least 6 months of payment history before the credit bureaus are able to calculate your credit score. If you're recovering from negative financial events, like missed bill payments or a consumer proposal, it could take between 12 to 18 months before you start noticing any substantial results. The key is to be patient. Raising your credit score and improving your financial health is like exercising: it takes time, discipline, and consistency.

If you decide to close your account, you will receive your security deposit back as long as you don’t have an outstanding balance. If you've been using your secured card responsibly, your lender might offer to graduate you from a secured card to an unsecured credit card. In this instance, your lender would return your deposit before issuing you your new unsecured card.