One way to improve a bad credit score is to begin rebuilding it by getting a credit card and making monthly payments on time. However, when you already have bad credit, it can seem nearly impossible to get approved for a credit card in Canada. Don’t despair. There are several companies that are willing and ready to help you improve your credit by offering you a line of credit in Canada. There are limitations and fees associated with these cards, but they are a great way to get your financial life back in order.
Check your credit report. First, you will want to obtain a copy of your credit report to check for inaccuracies. The reason for your low credit score could be related to a mistake that is on your report and needs to be corrected. There are two agencies in Canada that handle credit reporting, TransUnion and Equifax. These agencies must send you a free copy of your report by mail if requested. If there are any discrepancies, you can call the agency to have the mistakes corrected.
Apply for a secured credit card. While it’s nearly impossible to be approved for an unsecured credit card when you have bad credit, almost anyone can get a secured credit card. Usually the interest rates are not as bad on these cards, because you are putting up collateral to back the card. You will normally have to put up a deposit of at least a few hundred dollars. The line of credit will be the same amount as the deposit you placed. There is also an annual fee of from $5 to $120 on these cards. You can avoid paying a deposit by using your home as security. If you default on the payment, though, you risk losing your home. For a list of secured credit cards available in Canada, take a look at the Consumer Bad Credit Guide. See Resources for the link.
Get a prepaid credit card. Prepaid credit cards will allow you to make purchases online and can be used in places where checks aren’t accepted when you don’t have cash. These are another great tool to build your credit. One prepaid card available to Canadians is the CAA TravelMoney card. This card has one of the lowest setup fees and no monthly maintenance fee, but requires a higher minimum reload amount. See Resources for a link. Another prepaid card available in Canada is the MyPlash Prepaid MasterCard. This has a lower minimum reload amount, but has a higher setup fee and a monthly maintenance fee of $5.95. See Resources for a link.
Apply for a student credit card if you are a student. Students are notorious for having little to no credit, so companies create credit cards specifically targeting them. These cards are a great way for students to begin building credit. Student credit cards typically have lower limits to help younger card owners keep their finances in check. Student credit cards are helpful for first-time card owners. TD Canada Trust offers a variety of Visa cards to students. See Resources for a link.
Apply online. Once you have selected a card that is appropriate for you, apply online. Online applications are faster and don’t involve all the paperwork included with traditional applications. They are also received and approved faster. Before you apply, make sure you are getting the best deal available. Read the fine print to make sure the interest fee you are offered at first won’t skyrocket after the first six months.