A secured credit card is a type of credit card that requires you to pay the issuer a security deposit. You’ll need to put a security deposit down which will be held in a special savings account. Depending on the credit limit you request, the required security deposit can range from a few hundred to several thousand dollars. Thus if you put down $500, you will likely be given credit of $500. You might consider applying for a secured credit if you:
- had filed a consumer proposal or bankruptcy in the past,
- had credit problems in the past and want to rebuild your credit score,
- had no credit history.
You are still expected to make regular payments, as you would with a regular credit card, but should you default on a payment, the card issuer has the option of recovering the cost from your security deposit and cancelling your credit card.
The advantage of the secured card for an individual with negative or no credit history is that most companies report regularly to the major credit bureaus. Making all your credit card payments on time will help you build a positive credit history or rebuild a poor credit score. Once your credit score is considered satisfactory, you may be eligible for an unsecured credit card. At that time, the security deposit may be returned to you if you decide to close your credit card account after paying off the entire balance.