No credit? Bad credit? Secured credit cards may be what you’re looking for. And you don’t have to pass on rewards — many offer cash back or other points
Secured cards are often marketed to people with a thin or bad credit history who might not be able to qualify for a regular credit card. To get a secured card, you must put down a security deposit in advance, which then becomes the card’s spending limit. You pay a secured credit card bill the same as you would an unsecured card, but if you happen to default on the card, the owed balance is covered by the deposit.
“It kind of functions like a debit card, in that you have money to spend, but it’s your money, you’re not really using traditional credit,” says Zach Honig, editor-in-chief of The Points Guy, an affiliate of Bankrate, which owns Canada.Creditcards.com. However, because secured card behaviour is reported to the credit bureaus, secured cards allow you to build or rehabilitate your credit scores. And just because you’re not eligible for an unsecured credit card, doesn’t mean you have to be shut out from rewards programs.
Granted, very few secured credit cards on the market offer Air Miles, cash back or points that you typically see attached to unsecured credit products. Issuers understand that the fees associated with these cards can be difficult for someone with a questionable credit history to afford.
“Rewards cards are typically the premium cards,” says Honig. “They usually come along with an annual fee and someone that is trying to get a secured credit card may not have all that much disposable income. Paying an annual fee may not be practical for them.”
But some secured rewards cards are out there, and some don’t even have an annual fee.
“A rewards product that’s a secured card is kind of a win-win for the bank,” Honig says. “They get you as a customer and once you establish credit they could keep you as a customer, especially if you already have a rewards balance on one of their cards. The rewards might be the thing that motivates you to stay with them.”
If you’re stuck with a secured card, but want to earn rewards, consider one of these cards:
CapitalOne Vibe MasterCard
This is a card marketed to students and young adults with no credit history. It has no annual fee and offers 1 per cent cash back on all purchases.
Based on your credit history, you’ll have to provide a $75 to $300 deposit for this card, which will be fully refunded if you cancel the card, as long as you don’t have a balance. The drawback here is that the low deposit means a low credit limit. Other secured card providers offer secured credit limits of at least $1,000. Additionally, only students and young adults qualify for this card.
TD First Class Travel Visa Infinite Card
On the higher end of secured credit limits, the TD First Class Travel Visa Infinite Card offers a $5,000 minimum credit limit, as well as 20,000 TD Points just for signing up. The points can be used toward travel purchases such as flights or hotels, and they never expire as long as you are a cardholder.
You earn three TD Points for every dollar you spend with the card and nine points per dollar when you book your travel arrangements online through Expedia. However, the card has an annual fee of $120. Plus, qualifying for this card requires $60,000 annual gross personal income or $100,000 in gross household income. Many secured card applicants will struggle to meet these requirements.
But, as Honig points out, just because you’ve applied for a secured card doesn’t mean you’re in a poor financial situation overall. You may have gone through a bankruptcy to write off a bad investment, but still have other sources of income. Or you may be new to the country and though you can afford a high credit limit, a secured card may be your only way to establish credit in Canada.
CIBC Double Double Visa Card and Telus Rewards Visa Card
Any CIBC credit card can be made into a secured card with a minimum of $500 down, and these cards are two of the few retail rewards cards offered in a secured format. They are virtually identical except that one earns rewards for Tim Hortons and the other for Telus. Neither has an annual fee, and interest rates for purchases are the same on both.
The Double Double Visa Card offers $20 in Tim Cash just for signing up and 1 per cent back in Tim Cash on every purchase. The Telus Rewards Visa gives you one Telus reward point for every dollar spent and 1.5 points for every dollar spent on Telus products or at gas stations and grocery stores. However, both cards come with one obvious drawback: points can only be redeemed at the specific retail location promoted by the card. Nevertheless, these cards can still be valuable if you frequent one of the retailers often.
“A retail rewards card makes sense if there is a high sign-up bonus or if the retailer is offering a high percentage discount for using that card in-store that can’t be obtained any other way,” Honig says. “It really just depends on the incentives offered by the issuer.”
With retail cards like these, there’s also a possibility for double-dipping. If you already have a loyalty card from Tim Horton’s or Telus, you can earn points on both the regular Tim’s and Telus loyalty cards and on your secured card simultaneously.
Choosing the best rewards cardfor you
“The key for reward-hungry consumers is to pick the card that best matches their needs and really focus on accumulating points while making sure they’re not taking on debt in order to do so,” says financial journalist Alison Griffiths.
Griffiths, who travels extensively in the U.S. and Canada, likes the after-tax rate of return that free travel rewards bring. You may prefer cash back or loyalty program rewards if most of your spending qualifies you for higher levels of reward incentives.
And even millionaires would choose a rewards card that costs the least while paying back the most in rewards, benefits, security deposit interest and other perks.