Your credit is influenced by a variety of factors, and financial problems can quickly and easily take a toll on your credit score. Bad credit can make it difficult to get a mortgage, car loan, or apartment lease, so taking steps to improve your credit is crucial.
Rebuilding your credit can be a long and difficult process, but it’s not impossible. If you’re trying to increase your credit score, you should consider getting a new credit card. There are many credit card companies in Canada that offer cards for people with low credit scores or limited credit histories.
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How Do I Rebuild My Credit?
When used properly, a credit card is one of the best tools for rebuilding credit.
Payment history is the most important factor in your credit report and accounts for 35 percent of your credit score. Missed payments stay on your credit history for a long time but making regular new payments on your credit card can help boost your score. It’s essential that you make payments on time if you want to improve your credit, so you should consider using autopay or setting reminders on your phone when your payment is due.
Credit utilization is another important component of credit, making up 30 percent of your total credit score. Your credit utilization is the percentage of your available credit that you’ve borrowed. The less credit you’re using, the better your credit score will be.
A new credit card will increase your available credit, so your credit utilization will decrease. For example, if you currently have $1,000 in available credit and have a $500 total balance, your credit utilization is at 50 percent. If you get a new credit card with a $500 credit line, your available credit is now $1,500. Then, your $500 balance will only be about 33 percent of your available credit.
However, if you use your new credit line to make a big purchase, it will have a negative effect on your credit utilization and on your overall credit score. You should pay your balance off in full every month to keep your credit utilization low.
Guaranteed Credit Cards vs. Secured Credit Cards
If you have a low credit score or a bad payment history, you may not be able to get a regular credit card. You should be able to get approved for either a guaranteed or secured card, though, which is an excellent first step toward rebuilding your credit.
A guaranteed credit card is a card that virtually everyone will be approved for. There aren’t any credit cards that approve every applicant with a 100 percent guarantee, but there are many cards that are marketed toward people with bad credit and that approve everyone who meets certain qualifications.
Some companies offer pre-qualification questionnaires, so you can find out whether you’re likely to be approved without undergoing a credit check. This way, if you aren’t likely to be approved, you’ll know to look for a different credit card without having to go through a hard inquiry, which can lower your credit score.
Secured credit cards are cards that require a security deposit to activate. In most cases, the security deposit is equal to the credit limit. Deposits usually start at $200, but some can go as high as $1,000 or more. When you close your account, you’ll get your deposit back as long as you’ve paid off your balance in full.
Because the security deposit acts as collateral, most people can get approved for a secured credit card regardless of their credit history. Paying off the balance in full each month is a great way to improve your payment history and increase your credit score. Eventually, the credit card company may upgrade you to an unsecured card and return your security deposit.
Best Credit Cards for Bad Credit
You can find many credit cards from a variety of companies that can help you rebuild your credit. All cards have different features, so you should research your options before applying.
To help in your research, here are four of the best cards for bad credit.
1. Capital One Guaranteed Credit Card
The Capital One Guaranteed Credit Card is one of the top cards for establishing or rebuilding credit. You have guaranteed approval as long as you’re the age of majority in your province or territory, don’t currently have a Capital One card, haven’t had a Capital One account in bad standing within the last year, and haven’t applied for a Capital One card more than once in the last month.
Depending on your credit history, Capital One may offer you a secured or unsecured card. The credit limit ranges from $300 to $7,000, and the card has an APR of 19.8 percent and an annual fee of $59. Capital One reports your credit card activity to credit reporting agencies every month, so making regular payments and keeping your balance low will boost your credit score.
You can apply for the card on Capital One’s website.
2. Refresh Financial Guaranteed Credit Card
Refresh Financial offers a secured credit card with guaranteed approval for anyone with a bank account, a minimum monthly income, and a Canadian ID. You don’t have to undergo a credit check to be approved, so it’s ideal for people with bad credit or a limited credit history. To apply, you can fill out a form on the company’s website, and a representative will call you to verify your identity.
Depending on the size of your security deposit, your credit limit can range from $200 to $10,000. The card’s APR is 17.99 percent, and the annual fee is only $12.95. Refresh Financial also offers a free financial education program called F.I.T., which can be helpful for people who are learning how to improve their credit.
3. BMO Secured Credit Card
The BMO Secured Credit Card is a reloadable Mastercard with a security deposit of $100 to $10,000. Your security deposit is equal to your credit line, and you can use your card at more than 30 million locations. The annual fee is only $6.95, and there is no interest rate on your purchases.
The BMO prepaid credit card is ideal for people who are establishing or rebuilding their credit. Because the security deposit is equal to the credit line, most people are approved for the card. The online application only takes a few minutes to fill out, and you’ll find out immediately if you were approved.
4. Home Trust Secured Credit Card
The Home Trust Secured Credit Card allows for a security deposit of $500 to $10,000. Your deposit is equal to your credit line, and you can increase your credit line with an additional deposit at any time. The card’s APR is 19.99 percent with no annual fee or 14.9 percent with a $59 annual fee.
Home Trust requires that you send in your security deposit along with your application. You can apply online and send your security deposit in the mail, or you can mail both your application and your deposit to Home Trust. The company has a 95 percent approval rate, but they do not approve people who are currently in bankruptcy. If you’re not approved for the card, your security deposit will be sent back to you.