There are twice as many credit cards in Canada as there are Canadians. That makes us one of the heaviest credit card users in the world. They’re almost universally accepted, offer rewards and travel benefits, and you can still get the stuff you need when cash is tight. The catch? You need a good credit score to get a credit card, but it’s hard to build credit without one. Secured credit cards and prepaid credit cards are excellent alternatives for those who don’t qualify for a traditional credit card or want to avoid the dreaded debt trap. But what is the difference and how do you choose the right card? They’re not all created equal and it pays to shop around. Here’s what you should know:
What is a secured credit card?
A secured credit card is just like a traditional credit card but you need to provide a cash deposit in order to get it. Think of the security deposit you put down an apartment: that money protects the landlord from financial loss in case you wreck the place. The cash deposit for a secured credit card protects the credit card company from financial loss in case you don’t pay back what you owe. In most cases, your credit card limit is the same amount as your security deposit.
Secured credit cards were designed for people who cannot get a traditional credit card. Whether you have bad credit or no credit, a secured card can help you repair or build your credit history. Secured credit cards offer almost guaranteed approval because you have to provide a cash deposit upfront. As long as you are the age of majority in your province and have some income or a way to pay, almost anyone can get a secure credit card. Your security deposit is held in trust and you cannot access those funds unless you settle your balance and close the card.