How to Get a Credit Card with Bad Credit in Canada

April 4, 2019

Some credit cards are specifically designed to help Canadians repair credit. If you need a credit card but have bad credit in Canada, follow these steps to boost your chances of getting approved...

Getting approved for a credit card when you have bad credit can be frustrating. If you’re considered a subprime customer, which typically means if your credit score is less than 650, credit card companies might view you as a risk.

Lenders examine the credit histories of borrowers before deciding if a candidate is eligible to be approved for a loan or not. If an applicant’s credit report reflects poor money management skills, such as:

  • neglecting or missing monthly payments
  • applying for multiple types of credit in a short period of time
  • collections on your credit report
  • a history of a consumer proposal or bankruptcy

When you have bad credit, you know how difficult it is to get approved for a loan product. Fortunately, there are loan products that are easier to get that can help you raise your credit score.

Guaranteed credit cards and secured credit cards are powerful tools if you have no credit or poor credit. Follow our steps to increase your chances of getting approved.

Apply for a guaranteed credit card (or secured credit card) to help rebuild credit

What's the difference between a guaranteed credit card & a secured credit card?

Guaranteed credit cards and secured credit cards are designed to help those with bad (or no) credit to rebuild (or establish) their score. 

Guaranteed credit cards work the same way as unsecured credit cards in the sense that borrowers can use up to the maximum limit available. Usually, guaranteed credit cards do not require collateral (or security deposit) upfront in order to get approved. If a security deposit is required upfront, the deposit does not dictate the maximum credit limit.

For example, if you want a credit card with a $1,000 limit, you might not get asked for a security deposit. If you do get asked for a security deposit, you might only have to put up $300. 

If you don't qualify for a guaranteed credit card, a secured credit card is good alternative. A secured credit card always requires collateral. A secured card acts like a regular credit card in almost every respect except you agree to place a security deposit (equal to the limit amount) when you apply.

For example, if you want a credit card with a $1,000 limit, you will be asked for a security deposit of $1000. Those funds will be returned to you when you've reached your credit improvement goal or cleared your balance and closed the account.

Since the card is secured with collateral, it's easier to get approved for a secured credit card with low credit.

Are they like prepaid credit cards?

Prepaid must not be confused with guaranteed or secured credit cards. With a prepaid credit card, you preload the card and can spend until the funds are gone. You can reload the card with more cash.

There is no monthly payment and no interest to pay. You also don’t have to worry about debt since there is no lending involved.

However, it's important to note that, since you are not borrowing money, prepaid credit cards will not help you build up your credit score. That's an important difference between prepaid cards and guaranteed/secured cards.

Capital One is a Canadian credit card issuer that offers guaranteed and secured credit cards with low-interest rates for Canadians who have bad credit. Check your eligibility in a couple of minutes!

Whether you get approved for a guaranteed credit card or a secured credit card is up to you. Here are a couple of strategies to help boost your chances of getting approved for the card you want...

1. Understand how credit cards and interest rates work

Whenever you open a new line of credit, your credit score is impacted.

Depending on how you use your credit cards, they can either help raise your score or potentially drop it.

Your credit report shows a mix of revolving and installment credit. Credit cards are a form of revolving credit which means the debt is ongoing and not fixed. You have a credit limit and can borrow up to that maximum limit.

If you’re applying for a new credit card, lenders will run a credit check on your file. The interest rate that you’re approved for is directly correlated to how good or bad your credit history is. The interest rate is the cost of borrowing money. The better your credit is, the lower the risk is for the lender, and the lower your interest rate will be. 

A lot of Canadians don’t know the exact details of how interest rates work, which is interesting considering interest is typically where the overwhelming debt cycle starts. Credit card interest rates in Canada range anywhere from approximately 19% to over 29%.

Credit card companies charge interest to borrowers who fail to pay their entire balance at the end of every month. Every day, interest compounds on the balance of what you owe.

The Annual Percentage Rate (APR) on your credit card indicates what you will be expected to pay in interest over the course of one year.

Read more: How to Get Low-Interest Rates with Bad Credit

Before you apply for a new credit card, check the health status of your existing credit cards if you have any. If you’re only making the minimum payments each month and not paying you outstanding balances in full, your credit utilization might be high which is bad for your credit score. Get into the habit of clearing your balance every month or at least make sure you pay at least double the minimum payment. This will contribute to a better credit score and better savings.

2. Consider debt consolidation

In 2019, credit card delinquency rates in Canada climbed to a 2-year high.

Although this is good news, credit card delinquency – or failing to pay your credit card balance – is still common in Canada. Canadians who neglect to pay off their credit cards every month incur damage to their credit score.

If credit card debt is becoming a serious problem for you, you might be able to consolidate all your debts into one loan.

Consolidate your credit card debt with a personal loan

Debt consolidation is the act of bundling a consumer’s unsecured debts into one loan. Instead of having to make multiple payments on different loans every month (each equipped with different fees and rates) debt consolidation helps merge the debt into one monthly payment with a set interest rate.

Debt consolidation won’t rid of your debts. But with a reasonable interest rate, it could help you save money. This, in turn, could help you pay off your debt more quickly, and the sooner you’re paying bills on time, the sooner your credit score will improve.

To get approved for a debt consolidation personal loan, reach out to a financial institution that's equipped to work with low credit customers—such as Fresh Start Finance. With a personal loan approval, you can turn revolving credit into installment credit, making your debt more manageable and straightforward.

Since 2010, Canada Drives has been helping Canadians find better deals on great vehicles in every province, city, and town. Our online application takes less than two minutes, and we’re partnered with dealer partners all across the nation that offer incentives and promotions for people facing all types of credit situations. Apply with Canada Drives to learn more and see what you’re eligible for.

Previous
Next

Apply for Your Car Loan

Your online application takes only 3 minutes to complete and we only ask for information we actually need.

Get Approved Today

Or feel free to call us at
1-888-865-6402