What are the best credit cards to rebuild your credit in Canada? Take two minutes of your time, because we have the only list you need. Even if your credit rating is low or you have no credit history, you can get a credit card. Credit cards have a definite advantage over prepaid cards and debit cards. When used correctly, they help you build a positive credit history, which improves your credit rating. It is an attractive solution for immigrants with no credit history, students, consumers who have already filed for bankruptcy, or those who have bad credit. It’s not easy to regain control of your financial life, but these cards can help you get back on track.
There are two types of credit cards you can get, regardless of your credit rating. The first is a guaranteed approval credit card that does not require a security deposit. With this type of credit card, your credit limit will likely only be a few hundred dollars.
The second type of credit card is called a secured credit card. Secured credit cards require a cash deposit to “secure” the card. If you don’t make your payments, the credit card issuer will use your security deposit to settle the debt. Generally, your credit card limit will be equal to the amount of your security deposit. You will only be able to get your deposit back if the card expires or if you cancel it. Although it requires a larger initial capital, this type of credit card is a better option for those who need a higher credit card limit than that offered by a guaranteed approval credit card with no deposit.
To help you choose a credit card to rebuild your credit, we did some research on our credit card comparator and identified the 16 best credit cards to rebuild your credit in Canada.
What is a credit score and how is it calculated?
If you’re reading this article, you’ve probably suffered financial trauma and need to rebuild your credit rating. Before we dive into the different cards available in the market that can help you do that, let’s take a quick look at how credit score works and the easy ways to improve them right now.
Your credit score is a three-digit number on a scale of 300 to 900 that tells creditors how likely you are to repay your debts as agreed. The worst score is 300 and the best is 900. Your credit score is determined by the following:
- Payment history: how often you make your payments on time and how often you pay late or miss a payment altogether.
- Credit utilization ratio: how much you owe on your credit cards and lines of credit.
- Credit Age: How long you’ve been using credit and the age of each of your credit accounts.
- Applications: How often do you apply for credit?
- Public records: all credit accounts that have been sent for collection, if you’ve been sued for money owed, CRA judgments, and even unpaid child or spousal support.
Quick and easy ways to improve your credit rating
Many elements influence your credit rating, some may even surprise you. Both Equifax and TransUnion use slightly different models to calculate your score. However, they partly overlap. Both credit bureaus look at the following six behaviors that affect your score.
Check your credit score regularly
There may be errors or inaccuracies in the reports that lower your credit rating. Borrowell helps you spot errors so you can dispute them and give your credit rating a boost. It’s free to use and you can check your credit score as many times as you want without damaging it.
Make your payments on time
Your payment behavior has the most impact on your credit rating. Missing a payment can cost you up to 150 rating points. Making your payments on time every month without fail is the easiest way to give your credit rating a boost.
Pay off your debts
The more money you owe on your credit cards and lines of credit, the more it lowers your score. The fastest way to give your credit rating a boost is to pay off your outstanding credit balances. The best way to pay off your debts is the snowball or avalanche method. Which method is best for you depends on your goals and needs.
Clear public folders
Public records can have a significant negative impact on your credit rating. They include things like balances that have been sent to collection agencies, bankruptcies and consumer proposals, and even court judgments against you. If you have a credit card or cell phone bill that has been sent to a collection agency, you need to pay it as soon as possible.
Keep your credit accounts open
The older your credit accounts, the better. Try not to close things like your credit cards or lines of credit, even if you’re not using them anymore. Use your old accounts once or twice a year to keep them active, and pay the balance in full.
Stop asking for new accounts
Every time you apply for credit, such as a credit card, loan, or even opening a cell phone account, you must submit a credit check. This is called an impact credit check and it can hurt your credit rating if you have too much in a short period. If you’re trying to improve your credit rating, stop applying for credit unless necessary.
The best credit cards to rebuild your credit in Canada
If you’re ready to start restoring your credit rating, you can choose between two types of credit cards: secured credit cards and unsecured credit cards. But there is also a third often overlooked option: prepaid cards. Let’s see what each type of card offers so you can get the most out of your journey to restoring your credit.
The best-prepaid cards to rebuild your credit in Canada
Prepaid cards offer all the benefits of a credit card, but you don’t have to provide a security deposit or rack up debt when you use them. Instead, you load the card with the money you already have, ie money from your checking or savings account. In the past, prepaid cards didn’t affect your credit rating, for better or for worse. But times have changed.
No credit check is required to get a prepaid card, nor will use it affect your score. This is because you are not borrowing money from the issuer of the prepaid card and nothing is reported to credit reporting agencies. But prepaid cards have come a long way, and some of the major prepaid card issuers offer exclusive credit-building tools and resources when you sign up for their card.
If your credit application is rejected outright because your credit score is particularly low, or if you have no credit history, we are here to throw you a lifeline. Whether you are new to credit, such as immigrants and students, or have been through a financial crisis such as job loss, divorce, or serious illness, you have options available to you. Let’s start with the best-prepaid cards that offer credit-building resources.
Koho Visa Prepaid Card
Fee: $7 per month for credit enhancement
Discount rate: 0.5%
The KOHO Visa prepaid card is one of the best on the market. It comes with no monthly fees or interest rates, plus you get 0.5% cashback on all your purchases. There’s also a premium option for $9 a month, which entitles you to 2% discounts on transportation, groceries, and restaurants.
And now, the best part! If you need to rebuild your credit rating, you can enroll in their “Credit Enhancement” program. It is a monthly subscription service that costs $7 per month. KOHO will automatically withdraw this amount and report this payment to the credit bureaus each month. All you have to do is open an account, sign up for the program, and make sure there’s at least $7 in the account each month.
MOGO Visa Platinum Prepaid Card
Annual fees: None
Cashback rate: 2% cashback in Bitcoin
The MOGO Visa Platinum is another prepaid card that uses the money you already have. It is free to use and does not require a credit check or security deposit. We love MOGO for two reasons. First, the card offers rewards of 2% cashback on bitcoins. Bitcoin has been the best performing asset class over the past 10 years, with average annualized returns of around 250%. This means that the value of your rewards can increase significantly over time without you having to spend more. You can cash out your bitcoins in Canadian dollars at any time. Second, using this card can save the planet! That’s right, check out our prepaid card review MOGO Visa Platinum to find out how.
MOGO also offers a free credit monitoring service when you activate the MOGO Visa Platinum Prepaid Card. You won’t increase your credit score by using the card, but you can monitor your score for free and check your credit as many times as you want without impacting your score. MOGO offers free insider tips on how to improve your rating. MOGO is offering a $200 cash bonus to the customer whose credit score has improved the most in a month. According to the MOGO website, the average MOGO Visa Platinum card user saves around $201 per month. Their budgeting app and money management tools can help you save more money and pay off debt faster.