Rebuilding your credit is a priority when you have a low rating due to late payments, outstanding balances, or too many loan applications. The process certainly takes time, but it’s possible to regain points more quickly by choosing a secured credit card. Here is how this type of card works.
Obtaining a secured credit card
When you have a low score, you usually no longer have access to credit and particularly to conventional credit cards, which are a good way to improve your rating when they are used according to certain conditions. In this case, the only solution to obtain a credit card is to apply for a secured credit card, also known as a credit card with collateral. This type of card can be granted to people who have gotten out of bankruptcy, with a bad score, who have had credit problems in the past, and even those in consumer proposal situations. To acquire one, you also need to be a Canadian citizen or a permanent resident and have been with your employer and at your house for at least six months. Under these conditions, this card can easily be obtained by making a deposit as collateral corresponding to one to two times the credit limit that it contains, because that way, the banking institution has the necessary funds to cover the amount of expenses incurred in case of non-payment of the card by the deadline. This type of card is usually limited to $1,000 to $1,500, an amount that represents half or all of the deposit requested at the account opening, depending on the institution’s policy.
Using your secured credit card optimally
Like traditional credit cards, secured cards let you recover points on your score as long as they are used appropriately. The first rule to follow, of course, is to pay your credit card bills on time, because instead of helping them regain some credit points, any late payment will cause the user to lose them. The second is to limit your expenses to one-third to half of the authorized limit. Indeed, when the amount of credit used approaches the limit, credit agencies award fewer points to these card users, as they are not considered good managers.
Taking advantage of the benefits of a secured credit card
When the card is used up to 33 to 50% of the authorized limit and the payments are made on time, it generates the most points. Furthermore, after one year of incident-free use, it’s generally possible to obtain a traditional credit card or even a card at a reduced rate and recover your deposit.
Besides limiting loan applications, avoiding outstanding debts, paying your bills twice a month, and paying off small balances, a secured credit card is a great way to improve your credit score when you have experienced financial difficulties and find yourself with a low rating. Unlike a prepaid credit card, which doesn’t let you regain points, a secured credit card is also a test for lending institutions to verify whether the user can borrow responsibly. In other words, it’s a real second chance for them to access credit again.