Credit Card scores are primarily based on your net credit report. In countries like Canada, access to credit cards is heavily reliant on your credit score. Individuals with high credit scores can obtain credit at any time and from any credit card company; however, obtaining credit cards becomes difficult if your credit rating is poor.
Credit scores are based on a variety of factors, but primarily on your payment history. A low credit score can affect your chances of getting an auto loan, mortgage, or credit card. This article luckily provides the simplest methods to improve your credit score and some of the best credit cards to consider.
Why Do You Have A Poor Credit Score?
Several factors contribute to having a low credit score. Some are inherent to one’s spending habits or policies within the geographical space. You may take steps to raise your credit score, though.
The most common reasons why you experience poor credit scores include:
Exceeding the credit card limit
Late payment of bills
Failure to repay a loan
Closing on your house
In Canada, unfavorable information regarding your credit score remains on your credit report for six years. I think we can all agree that this is a very long time to go without access to credit facilities.
The two credit reporting companies for Canadians, Equifax, and TransUnion, determine your credit score. The accuracy and transparency with which TransUnion and Equifax calculate credit scores are well-known. Everyone uses a different scale and algorithm to determine your credit score. Low credit scores indicate bad credit and label you as a risky borrower, which limits your ability to access credit facilities.
Credit Score Rating In Canada
Credit scores typically range between 300 and 900. If your credit score is between 300 and 580, you have bad credit. If your credit score is less than 580, landlords, lenders, and banks will view you as a risky borrower. As a result, getting a loan is less likely, and the interest rate will be higher if you do.
Receiving credit product approval will be more difficult if your credit score is around 500, which is considered fair or low. People with 600, 500, or lower credit scores have difficulty obtaining a loan; credit providers view them as risky borrowers. If your credit score falls within that range, you have a high chance of defaulting on credit products.
You can avoid poor credit ratings by simply being responsible. Prudent financial planning is key. When you get a credit card, use it responsibly, redeem your debts as when due, and you are sure always to hit a high credit score.
Let’s get a breakdown of credit score ratings in Canada:
Excellent credit score ranges from 760 to 900 (High score; this should be your goal.)
Very good credit score ranges from 725 to 759 (High score; encouraging if you didn’t get up to excellent credit score.)
Good credit score ranges from 660 to 724 (You should not go below this)
Poor credit score ranges from 560 to 659 (A credit score to be avoided)
Bad credit score ranges from 300 to 559 (too bad to be considered)
Credit Card Options For Bad Credit
Your credit score determines the type of credit card you can access. The credit card generally available is secured credit cards, unsecured credit cards, and prepaid credit cards.
Secured Credit Card:
This indicates that funds must be placed with the credit card company to create an account. The amount is referred to as a security deposit. Like the security deposit paid to a landlord to rent an apartment, it is maintained by the credit card issuer while the account is open. You must supply a security deposit for a secured credit card, which is your credit limit. It is simpler to be eligible for.
Unsecured credit card:
This makes up the majority of available credit cards. With an unsecured credit card, you are given access to a credit line that you can use as needed and then pay back each month. Your eligibility and credit limit for an unsecured credit card are determined by the issuer’s assessment of your capacity to settle any outstanding bills.
Your credit score plays a crucial role in accessing an unsecured credit card. Although no deposit is needed for an unsecured credit card, stricter qualifying conditions exist.
Prepaid credit cards
This has credit limits determined on the deposit made by the account holder. It functions similarly to a traditional credit card, except account holders spend money already loaded onto the card rather than borrowing money to make purchases.
It’s much less likely that you will be approved for the unsecured credit or low-interest loans you seek if you have a negative credit score. You might not be able to receive the loan you require if you want to establish a business, own a home, or make an investment that will benefit your finances in the future.
Best Credit Cards For Poor Credit Scores
You will probably not get authorized for some credit cards if you have bad credit. Rewards points, cash back, and low-interest rates will be lost to you. The good news is that you may begin renewing your credit score with a few credit cards Canadians can get. Some of the credit cards will be explained below.
The Neo Secured MasterCard
Low credit ratings are accepted for the Neo Mastercard, an unsecured credit card from Neo Financial. The Neo Secured Mastercard and ordinary Neo Mastercard offer the same incentives, but the standard Neo Card does not require a security deposit. Anyone with bad credit or no credit history can improve their lives with the Neo Secured card.
The Neo Secured card gives guaranteed acceptance regardless of credit scores. This is particularly advantageous if you’re a foreign resident of Canada without access to a credit card. The card doesn’t provide insurance like coverage for mobile devices or extended warranties. Alternatively, it offers up to 15% cashback on your initial Neo partner store purchase.
The KOHO Mastercard is a free reloadable prepaid card with several benefits, including cash back on all purchases. With a KOHO account, you can apply even if your credit score is low or bad, unlike with a standard credit card.
Your credit score is unaffected by a normal KOHO card, but you can add an extra “credit building” feature for an additional $7 per month. When you set up a direct deposit, the KOHO Card comes with a free budgeting tool and offers interest on the whole.
A unique prepaid card called KOHO gives you incentives with each transaction you make. You’ll receive 0.5 percent cash back on all purchases made using the card. The best part is that you’ll receive your incentives shortly after making your purchases. There is no need to wait; you can utilize them nearly immediately.
Home Trust Secured Visa
Do you seek a guaranteed secured credit card for people with poor or bad credit? Then, the Home Trust Secured Visa is your sure plug. Home Trust Secured Visa can be used to establish credit and has a $500 minimum requirement.
You can choose between the basic card with the 19.99 percent interest rate and pay no annual fee or the low-interest rate option with a $5. This credit card is suitable for rebuilding your credit trust and raising your credit score.
The Home Trust Secured Visa card is intended for persons with atypical credit histories, such as independent contractors, students, immigrants to Canada, and anyone with credit problems. You may take charge of your future by rebuilding your credit rating. The home trust secured Visa is the best credit card for new credit card users.
Capital One Guaranteed Secured MasterCard
If you pay a $75 or $300 security deposit and fulfill other minimal requirements, you will receive guaranteed approval for the Capital One Guaranteed Secured Mastercard regardless of your credit score. It is excellent for developing credit, much like the other cards on this list.
Canadians who have a past-due Capital One account in the year before applying for this card are the target market for this card. Since everyone occasionally faces financial difficulties, Capital One provides this card as a practical and convenient solution to repair damaged credit.
While other credit card companies may instantly reject an application due to account delinquency, this card offers several additional benefits and a way for cardholders to get their finances back on track, all with the support, technology, and resources of a significant international financial institution.
Scotiabank Value Visa
The Scotiabank Value Visa might be for you if you’re looking for an unsecured credit card with no security deposit. Although it has a slightly higher minimum credit score requirement, its 12.99 percent purchase APR is among the lowest in Canada.
If you want a simple, safe way to pay for daily purchases that may also help you establish a credit history, the Scotiabank Value Visa is a good choice. To qualify, you must make at least the minimum payments due each month on schedule.
It is preferable if you want the option of paying an annual fee to earn a reduced interest rate or if you would like an interest-free grace period on purchases that often carry a balance on your card. Or if you accept a higher interest rate on your card because you seldom carry a balance and enjoy the extra incentives and privileges one of our other Cards offers.
How to Apply for The Best Credit Cards?
The cards explained above are available for poor credit card users. Generally, there are basic requirements needed to be eligible for these cards. These requirements vary across cards but are usually similar.
The first thing to know when applying for credit is your credit score. Knowing your credit score will help determine which credit card to apply for.
Consider your needs and expectations.
Visit the company’s website to know its peculiar requirements and application process.
You must be of age by your province.
Your income status, employment, or security may be required. This varies from card to card.
Sustained zero bankruptcy records.
Choosing a Credit Card for Poor Credit Scores
If you have a poor credit rating, it will be important to consider the following points, which can help your decision when choosing a credit card.
Consider the card fees
All credit card has annual fees. You wouldn’t want to choose a credit card whose annual fee is very exorbitant. Compare the credit cards available and know which one is affordable. The interest rates and other management fees are necessary. You wouldn’t want a credit card that will plunge you into more debt; therefore, card fee consideration is necessary.
Consider card approval possibility
Not all credit card applications are approved; some are rejected. Your credit card application is rejected negatively impacts your credit rating. Thus, before choosing a credit card, check for approvals. If the odds for approval are low, you better not apply.
A credit card must report your transactions to a credit agency, such as Equifax or TransUnion before it can help you establish or raise your credit score.
How You Can Improve Your Credit Card Score
You can simply improve your credit score by paying your bills on time, following the directions and timing of applications, and keeping your credit history clean. Follow the steps outlined below for a step-by-step procedure.
Pay your bills promptly.
Maintain open previous credit accounts to build a longer credit history.
Your credit use should not exceed 30% of your credit limit.
Check your credit report for mistakes and challenge any that you find
Limit the amount of credit you apply for to avoid becoming desperate or struggling financially.
Poor credit is not good for anyone’s financial situation. It hurts your relationship with your bank, and it hurts you in other ways as well. Moreover, the options listed in this article can help Canadians improve their credit scores from poor to excellent.
Using any of the best credit cards listed in this article will relieve financial stress while improving your financial standing at low fees and interest rates. Simply visit the company’s website today and obtain your credit card today.
Thanks for reading! Please let me know your thoughts and comments below.
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Sagar Sridhar is an accomplished personal finance blogger hailing from Canada. With a unique blend of quirkiness and enthusiasm, he has established himself as a prominent figure in the personal finance industry. Sagar’s passion for finance, coupled with his engaging writing style, sets him apart from his peers. While he has a background in computer engineering and a Master’s in Project Management, Sagar’s true passion lies in helping others manage their money. His writing has been featured in several top Canadian finance publications, solidifying his status as a sought-after voice in the field. Despite juggling his work and blogging schedule, Sagar remains resolute in his mission to make a lasting impact on the personal finance world.