How to Choose the Right Secured Credit Card

Without a credit card, life can be a whole lot tougher. Whether it’s making an online purchase, renting a car, or securing a reservation, many everyday transactions seem to require a credit card, even if you have the cash in hand. 

If you’re in a consumer proposal or have a poor credit rating and fear being turned down for a credit card, don’t panic. A secured credit card may offer you the flexibility you need and a chance to get your credit score back on track. 

Want to get an expert opinion on which secured card is best for your situation? Contact us for a free credit consultation and our expert consultants will recommend the secured Visa card or secured Mastercard you’re most likely to qualify for. Note: this post contains affiliate links marked with a *. Climb may receive a commission for signups made through these links.

What is a secured credit card?

A secured credit card is a type of credit card that allows you to access the benefits of a credit card, even if you’re in a consumer proposal or you have a low credit score. 

A secured credit card, like it’s name suggests, requires a security deposit. This is usually around 1-2 times the limit you’re applying for. For example, if you’re applying for a $500 limit, you’ll give the lender $500-1000 as a deposit. 

That means the lender takes on less risk: if you fail to pay back what you owe, they’ll use your deposit to clear that debt. 

The real long-term value of a secured credit card lies in its ability to help rehabilitate your credit score. Unlike a prepaid credit card, your lender will report your payments to credit agencies, meaning using a secured credit card will build a positive payment history, which can help you improve your credit score. Having a “revolving” form of credit on your credit report is one of the best ways to rebuild your credit, especially if it’s paired with an “installment” form of credit like a Climb Accelerator Plan. Learn more about the different types of credit here, or talk to one of our credit consultants about your own credit rebuilding goals.

Factors to consider when comparing secured credit cards 

As with any financial product, it’s important to understand what you’re signing up for when you take on a secured credit card. Here are some questions you’ll want to ask. 

1. What are the fees?

It’s relatively easy to find out whether the card you’re applying for has annual fees or not. 

But look out for other hidden fees, such as fees for foreign transactions, cash advances, declined transactions or going over your limit. One popular card advertises a low annual rate but then tacks on a monthly fee. You should ask to see a full fees schedule before you commit to a card and make sure the fees will be manageable for you. 

2. What’s the interest rate?

Secured credit cards typically have higher interest rates than a standard unsecured card. However, if you intend to avoid carrying a balance on your card this may not pose too large a problem. We recommend treating your secured credit card like a debit card and paying it off in full every month.

3. How much is the deposit and what happens to it?

Most cards will have minimum and maximum deposit requirements. Make sure you can afford the minimum deposit and that you understand how the deposit relates to the amount of credit that will be available to you. 

While you use your secured credit card, you won’t have access to the funds you’ve deposited and the deposit can’t be applied to your monthly payments. However, if you’ve paid your bills on time and in full, your deposit will be refunded to you when you close your account. 

Which is the right secured credit card for me?

Making the right choice of secured credit card will depend on your financial situation. Here are some of the options available to Canadian borrowers with a comparison of their different features and benefits. 

Home Trust Secured Visa

 
 Fees

 No Annual Fee

Other fees include:

  • Overlimit fee: $29.00
  • Dishonoured cheque fee: $45.00
  • Inactive account fee: The lesser of $10.00 or the full account balance if the account has been inactive for 360 days
  • Foreign currency conversion fees: 2%
  • ATM Charges: $2.50 for up to $250 cash advance within Canada—fees are higher internationally
Interest Rate  19.99%
Minimum Deposit  $500
Monthly Minimum Payment  3.00% or $10 (whichever is larger). 

 

Home Trust Secured Visa offers a great no annual fee option. The minimum deposit starts at $500 and maxes out at $10,000. The amount of credit available to you scales directly with the amount of your security deposit: so if you put $500 down, you receive $500 worth of credit

While Home Trust does require a credit check as part of their application process, the card has a high approval rating, and a low credit score is not usually associated with rejection. The catch is that you need to send a physical cheque to their office with your security deposit, which can be inconvenient.

The card offers the worldwide flexibility of the Visa brand, as well as an interest-free grace period of 21-days.  You can apply directly here.*

Home Trust Secured Visa (Annual Fee Option)

 
Fees

$59.00 annual fee (or $5 per month)

Other fees include:

• Additional authorized user fee: $19 annual fee (or $2 a month)
• Overlimit fee: $29.00
• Dishonoured cheque fee: $45.00
• Inactive account fee: The lesser of $10.00 or the full account balance if the account has been inactive for 360 days
• Foreign currency conversion fees: 2%
• ATM Charges: $2.50 for up to $250 cash advance within Canada-fees are higher internationally

Interest Rate  14.90%
Minimum Deposit  $500
Monthly Minimum Payment  3.00% or $10 (whichever is larger).

 

Almost identical to their no-fee option, the annual fee Home Trust Secured Visa has the benefit of one of the lowest interest rates available with a secured credit card. If you think you may carry your balances forward, this may be a better fit for you, so long as the fee is manageable.  You can apply for the HomeTrust Secured Visa Card here.*

Refresh Financial Secured Visa

 
Fees

$12.95 annual fee

$3 per month maintenance fee

Other fees include:

• Declined transaction: $0.10
• ATM Charges: $5 cash advance fee in Canada
• Overlimit fee: $5 for first time—additional times will result in the cancellation of your card
• Foreign Transaction Fees: 3.5%
• Inactive fee: $2 per month for each month you don’t use your card

Interest Rate  17.99%
Minimum Deposit  $200
Monthly Minimum Payment  Information not publicly available

 

Refresh Financial’s Secured Visa offers a secured credit card with a minimum deposit of just $200. It allows deposits up to a maximum of $10,000 and provides a comparable interest rate to other secured cards. This card offers a 21-day interest-free grace period on your transactions. 

This card requires no credit check and so your application is virtually guaranteed to be approved provided you meet the eligibility criteria and can provide the deposit. 

Capital One Guaranteed Secured Mastercard

 
Fees

$59 annual fee

Additional fees may apply

Interest Rate  19.8%
Minimum Deposit  $75-$300
Monthly Minimum Payment  Information not publicly available

Capital One’s Guaranteed Secured Mastercard promises that as long as you meet their conditions, you’ll be approved for a card. Capital One will set your credit limit and then require a deposit of either $75 or $300 based on that limit. You can increase your limit up to $2,500 by increasing the size of your deposit. 

With your Capital One Card you also receive Mastercard Global Services and Zero Liability protection for unauthorized purchases. Capital One also allows you to add an additional authorized user with no fees. 

Still have questions?

Grappling with secured credit cards when you’re in a consumer proposal can be a headache. If you have more questions about your credit score, its impact on your ability to get credit, and the options you have available to you, book a free credit consultation with one of our experts. We’ll help you explore your options and get your credit score back where it belongs.

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Author: Climb

Ultimate Glossary of Consumer Proposal Terms

Are you struggling with debt and considering a consumer proposal? Have you recently entered into one? Here’s an A-Z glossary of important terms related to debt and consumer proposals to help inform and empower your decisions. 

Complete List of Consumer Proposal Terms

Bankruptcy – When a person is unable to pay their debts, they may choose to file for bankruptcy. Bankruptcy is a formal process where you work with a Licensed Insolvency Trustee (LIT) and sign over all your assets (except those exempt by law) towards debt repayment. When you declare bankruptcy, payments to creditors are stopped, as are any legal actions like wages being garnished. Your first bankruptcy appears on your credit report for six years after your date of discharge and is listed as an R9 rating.

Bankruptcy and Insolvency Act – The Bankruptcy and Insolvency Act (BIA) is the Canadian act that outlines how bankruptcies and insolvencies work in Canada. It also details the roles and requirements of the Superintendent of Bankruptcy, the court, trustees, creditors, consumers and more.

Certificate of Full Performance – When you pay off your consumer proposal amount in full, your Licensed Insolvency Trustee (LIT) will complete a Certificate of Full Performance to make it official. Make sure that your Certificate of Full Performance is shared with the credit bureaus immediately since this will trigger your old debts to be marked as settled and begin the 3-year countdown until the consumer proposal is removed from your credit report entirely.

Consumer Proposal – A consumer proposal is a debt relief program authorized by the government of Canada, which is available to individuals as an alternative to bankruptcy. If you file for a consumer proposal and it’s accepted by your creditors, you’ll pay back a percentage of debts  to creditors, distributed over monthly, interest-free payments usually spread over a period of five years. A consumer proposal appears on your credit report for three years after your last payment and is listed as an R7. A consumer proposal must be administered by a Licensed Insolvency Trustee.

Credit Bureau – This term can be used two ways. A “Credit Bureau” is another term for a credit reporting agency (TransUnion or Equifax). Financial industry professionals such as trustees and credit counsellors also often refer to a person’s credit report as their “bureau”.

Credit Counseling – The goal of credit counselling is to help you improve your financial situation by providing advice on various topics like how to budget your money, improve your credit score and create a plan to assist with debt repayment. There are different types of accreditation from province to province, but it’s important to check that the credit counselling agency you work with is trustworthy and their counsellors are qualified.

Credit Counselor – A Credit Counsellor is someone who provides credit counselling. There are many individuals or agencies who might advertise this service without the right education and credentials so before you commit to working with a counsellor, check to see if they’re accredited in your province.

Credit Report – A credit report (also called a “credit bureau” by some industry professionals) is a document meant to show a complete overview of your financial history. It’s important to check your credit report regularly for errors as reporting mistakes do happen. Your credit report is one of the items used by institutions when determining your eligibility for getting approved for credit.

Credit Score – A credit score is a three-digit number assigned to you by the credit bureaus, which include Equifax and TransUnion. Credit bureaus use a mathematical formula to determine your score, taking into account all aspects of your credit report. Just like your grades in school, the higher your credit score, the better it is. A higher score increases your chances of getting approved for a loan and securing a lower interest rate – but you may see a different credit score number depending where you check.  

Debt Consolidation – Debt consolidation is the act of combining multiple smaller debts together into one loan. By consolidating all of your small loans, bills and other debts into one, it allows you to focus on one monthly payment rather than managing multiple payments each month.

Equifax – One of the two major credit bureaus in Canada. If you want to request a copy of your Equifax credit report or report an error to Equifax, contact them here.

Insolvency – Insolvency occurs when an individual isn’t financially able to pay their debts on time. Consumer proposals, debt consolidation and filing for bankruptcy are all options for individuals should they become insolvent.

Installment Credit – Installment credit is a type of loan that is extended for a predetermined amount of time, which is often referred to as the term of the loan. This type of loan usually has an amortization schedule to direct the borrower to pay off the principle through fixed installment payments over several years. Mortgages, car loans and student loans are popular examples of installment credit.

Licensed Insolvency Trustee – A Licensed Insolvency Trustee (LIT) is a are federally regulated professional that individuals and businesses can turn to for advice and services when they’re facing debt problems. The goal of an LIT is to help clients make informed financial choices.

Office of the Superintendent of Bankruptcy – The Government of Canada’s Office of the Superintendent of Bankruptcy (OSB) is responsible for the administration of the Bankruptcy and Insolvency Act (BIA) and duties under the Companies’ Creditors Arrangement Act (CCAA). The OSB licenses and regulates the insolvency profession, maintains public records and statistics and more.

Revolving Credit – Revolving credit is a type of credit that replenishes (up to a limit) each time the customer pays off their debt. Credit cards are an example of revolving credit.

Secured Credit Card or Secured VISA – A secured credit card or secured VISA is a type of credit card that is backed or “secured” by a cash deposit from the borrower. This provides the lender with security if the borrower can’t make their payment. A secure credit card is usually issued to individuals with limited or poor credit history.

Secured Debt – Secured debts is a type of debt where the borrower provides collateral for the loan. This could be a cash deposit, a car (for a car loan) or a house (for a mortgage). If the borrower defaults on the loan, meaning they’re unable to repay the debt, the lender can use the collateral to repay the funds.

TransUnion – Alongside Equifax, TransUnion is the other major credit bureau in Canada. If you want to request a copy of your TransUnion credit report or report an error to TransUnion, contact them here.

Unsecured Debt – Unsecured debt is debt that doesn’t involve any form of collateral support, such as a cash deposit from the borrower or a car or house (in the case of a car loan or mortgage). In the event that a borrower defaults on the payments, the lender must seek legal action (such as having a collections agency sue the borrower to garnish wages, file a lien on property, etc.) to be able to collect the balance owed.

Author: Climb

So, You’re in Consumer Proposal – Now What?

Imagine this:

John is a 44-year-old father of three children, and he works in the technical sales industry in Toronto. His annual salary is $63,000, which – combined with his wife’s salary of $45,000 – provided them just enough to cover mortgage payments on their small Toronto home. After his father passed away, a series of challenges left John feeling like his life was falling apart: he faced additional financial stresses from funeral expenses, one of his children was getting in trouble at school and the hardships were putting strain on his already distressed marriage.

Things didn’t get easier once a divorce became imminent. There were lengthy court proceedings and high legal fees. John’s financial stresses became perilous and he had no idea how he was going to afford the required child support payments, let alone pay off his debts. John feared that he would have no choice but to declare bankruptcy, which would involve losing his home.

A bit of good news came his way when John learned about consumer proposals. This would enable him to retain his assets and clear his debts within a five-year period. He connected with a Licensed Insolvency Trustee (LIT) who negotiated manageable payments with his creditors. He no longer faced collections agencies and climbing interest rates on his debts. It was a situation John had never envisioned he’d be in, but he accepted it as his best option.

This situation isn’t an uncommon one. Financial hardships and debt loads can land on any of us – even individuals who enjoyed a high income or financial comfort. And, it’s ok. Although it can feel devastating, it is possible to bounce back.  

Here are 3 attainable and affordable ways to regain financial stability during a consumer proposal:

1. Seek Financial Guidance

Personal finances are complicated and require careful attention and knowledge to manage properly. This is even more so the case for those experiencing financial loss and hardship, including those in consumer proposal.

Most people are not equipped to manage complex personal finances, let alone maximize their financial opportunities. When in financial distress or consumer proposal, there is little room for error or financial mismanagement. Fortunately, there are professionals skilled at identifying strategies to help you optimize your financial health and plan for a secure financial future.

It’s very important to seek advice from a reputable source that’s not charging a hefty service fee or trying to sell you a product. This could be costly for you and cause you to buy into a financial option that may not be right for you.

The main takeaway here is that you don’t need to tackle your financial hardships alone and some quality guidance can give you the confidence and ability to improve your short- and long-term financial situation.

2. Understand Your Credit Score

Unfortunately, during consumer proposal, your credit rating takes a hard hit. The debts on your credit report are marked “9”, the same rating as those in bankruptcy while you’re in consumer proposal. The debts are updated to a “7”, indicating the debt has been settled, after you’ve completed your proposal. If you’re not too familiar with what makes up a credit score, check out this summary.

It’s also a good idea to regularly monitor your credit score. This enables you to identify increases and decreases in your score and spot any errors that can sometimes find their way into your report. You can request a free copy of your credit report once a year from Equifax and TransUnion, Canada’s two credit bureaus. Additionally, Canadian companies such as Mogo, Credit Karma, and Borrowell can send you free monthly updates on your credit score and rating.

3. Consider a Credit Accelerator Program

An excellent way to improve your credit score during consumer proposal is through the Climb Accelerator Plan, a program specifically aimed at helping you boost your credit score while in consumer proposal. It has the added benefit of helping you build savings for a rainy-day fund or to pay off your consumer proposal sooner, so that you can move on with your life.

Here’s how it works: Climb works with you to develop an early repayment goal customized to your budget, payment schedule and financial goals. You make pre-authorized weekly, biweekly or monthly payments that Climb reports to Equifax and TransUnion. In the meantime, your money is stored in a secure account and then returned to you as a lump sum at the end of your term.

The program is a great and affordable way to improve your credit and financial situation while in consumer proposal. There’s no upfront fee and you can customize the amount you’re saving based on your budget, with plans as low as $7/week. Learn more about it here.

Conclusion

As you can see, the consumer proposal is not the end of the line for you. There are steps you can take right away to improve your financial situation by rebuilding your credit score, undertaking careful financial planning and exploring your options to accelerate your progress.

Have any questions about the tips above? Contact us today and we’ll help you navigate your way to a brighter financial future.

Author: Climb