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5 Types of Credit Cards for People with Bad Credit

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People with bad credit have more limited options but banks and lending services offer products to Canadians from all walks of life. Some of the options to consider are secured and payday loans, peer to peer lending services, and department store, prepaid, guaranteed, and secured credit cards. Borrowers with tarnished credit are usually turned down when applying for specialty credit cards with promotional rates, exclusive discounts, high limits, and other perks. The good news is that banks offer credit cards that allow consumers to make purchases, pay bills, and improve their credit profile.

Option One – Prepaid Credit Cards

Prepaid cards are also known as re-loadable and require a deposit to be made by the user or a third party, i.e. employer, friend, or parent. They are offered by major issuers such as AMEX, MasterCard, Visa, and Discover and are getting quite popular among borrowers with poor and bad credit. They can be used at home and abroad for in-store and online purchases. The main advantage is that a deposit is not required to open an account. Moreover, issuers offer prepaid cards to minors to help parents teach teenagers about credit and financial discipline. While customers benefit from the fact that interest is not assessed, there are annual fees, and purchasing and other fees.

Desjardins Prepaid Card

This card is re-loadable, and users are not required to deposit a minimum amount to make purchases. No credit check is required, and there are no minimum balance requirements. Borrowers with different credit profiles are welcome to apply. They are offered standard benefits such as contactless payments and zero liability. Applicants are free to request additional cards, and the annual fee is $4.95. The card can be used to make withdrawals and purchases.

  • No transaction charges
  • Annual fee: $6.95
  • Annual fee for users aged 16 to 25: none
  • Maximum amount to transfer to a checking account: $5,000

RBC® Visa‡ Commercial Prepaid Cards

RBC Royal Bank also offers a prepaid option that allows users to make purchases at retail stores, by phone, and online and features perks, incentives, and bonuses such as:

  • Dealer and sales incentives
  • Safety awards
  • Holiday bonuses
  • Product launches

The bank also offers employee benefits such as customer promotions, loyalty rewards and customer gifts, and door prizes. The maximum value to load to your card is $2,500 and the minimum – $25.

  • No inactivity fees
  • No maintenance and usage fees

Scotiabank® Prepaid Reloadable VISA card

This is yet another prepaid card that requires no credit check and is offered to customers with less than perfect credit. Reloads are free and easy to make, and users earn bonus points on purchases. Every $5 in purchases earns 1 point, and customers also use a SCENE membership card to redeem points toward free movies at Cineplex Odeon Theatres. Standard benefits such as zero liability protection are offered, and there is no need to apply.

  • No interest charges
  • Annual fee: $10

BMO Prepaid Travel MasterCard

The Bank of Montreal offers a prepaid MasterCard with benefits such as emergency replacement and purchase protection.  There are minimum and maximum load amounts, from $100 to $10,000.

  • Annual fee: $6.95
  • Additional cards: $6.95
  • Interest rate: none
  • Signup fee: $9.95

There are cash advance, refund processing, and other fees. On the good side, this is a convenient card to make purchases at home and at over 30 million locations worldwide. It is easy to qualify and get approved provided that you are of legal age and a permanent resident or Canadian citizen.

credit-cardOption Two – Secured Credit Cards

The main difference between prepaid and secured cards is that the latter require a deposit that is equal to the credit limit available. Both options, prepaid and secured, are available to customers with bad credit. Secured cards have pros and cons, the major benefit being that payments are regularly reported to the bureaus. This means that borrowers have the opportunity to rebuild or build credit. Customers are not sent to collections in case of default, and the security deposit is used to pay the outstanding balance. On the downside, the interest charges are higher, and there are fees involved.

No-Fee Scotiabank Value VISA Card

This card is a great choice in that it goes with a low intro rate of just 3.99 percent during a period of 6 months. The fact that there are no balance transfer fees means that borrowers get a low-cost solution and save money on transferring high-interest balances.

  • Interest rate: 99 percent
  • Annual fees: none
  • Grace period: 21 days or longer
  • Credit limit: $500 or higher

BMO Preferred Rate Mastercard

BMO offers standard and exclusive benefits such as travel services and extended warranty and helps cardholders increase their purchasing power. There are two options to save money on interest and annual fees:

Option 1:

  • Interest rate: 11.9 percent
  • Annual fee: $20

Option 2:

  • Interest rate: 17.5 percent
  • Annual fee: $0

The interest-free period is at least 21 days. BMO offers plenty of added perks such as roadside assistance and medical protection, trip cancellation, and travel protection.

Home Trust Equityline VISA Card

A good alternative to other secured cards, Visa by Home Trust offers the opportunity to earn 1 percent cash back on all purchases. It is designed as a tool for business funding, debt consolidation, purchases, and home renovations. The credit limit or line of credit that consumers qualify for is based on their home value, mortgage, second mortgage, and other factors. Applicants usually qualify for a credit line of up to 80 percent of their current home value, minus outstanding mortgage balances.

  • Interest rate: 99 percent
  • Annual fee: none

Option Three – Guaranteed Credit Cards

A guaranteed card is another option for poor credit borrowers and is also known as pre-approved and instant approval. Issuers often emphasize the fact that no credit check is required to get approved. At the same time, most issuers are interested in the kind of payment and borrowing history that customers have. The goal is to assess their credit eligibility. The main benefits for applicants are more lenient criteria and easier approval. On the downside, while it is easier to qualify, some consumers see their applications turned down.

Capital One Guaranteed Secured MasterCard

Capital One advertises guaranteed approval for applicants with no credit history. There is a security deposit of $75 or $300 which serves as collateral and is fully refunded once customers choose to close their account. This card is a good choice for consumers who seek to improve their credit rating and comes with extras such as emergency cash advances and zero liability.

  • Interest rate: 19.8 percent
  • Annual fee: $59

National Bank of Canada MasterCard® MC1 Credit Card

The MC1 MasterCard is advertised as a practical and convenient payment solution that helps customers to control and limit their spending. It is also a good tool to build credit history. Canadian residents of legal age meet the requirements. They are asked to provide financial and employment information such as bank accounts, card balances, etc.

  • Annual fee: none
  • Maintenance fees: none
  • Interest on cash advances and balance transfers: 21.99 percent
  • Interest on purchases: 19.99 percent
  • Credit limit: $500 or higher

Home Trust Secured VISA

Customers can use this card to make payments at retail locations and online, for hotel bookings, and to make withdrawals. Home Trust advertises guaranteed approval and the option to add an authorized user. There are two options:

Option 1:

  • Interest rate: 19.99 percent
  • Annual fee: none

Option 2:

  • Interest rate: 14.9 percent
  • Annual fee: $59

The deposit varies from just $500 to up to $10,000, and the interest-free period is 21 days or longer. Other fees apply, including rush plastic, ATM charges, and account maintenance fees for inactive accounts.

credit-card-2Option Four – Low Interest Credit Cards

A low interest card is the perfect choice if you want to save on interest charges. The minimum payment is usually lower, and there are perks and added benefits such as cash back or bonus points, concierge service, travel assistance, and others.  A lower minimum payment may work to the advantage of cardholders or it can be an issue. It can become unaffordable if the issuer calculates it as a percentage of the outstanding balance plus charges.

Desjardins VISA® – Modulo GOLD

Desjardins offers a VISA card with a competitive interest rate, complimentary travel insurance, and rewards program. Additional cards are offered free of charge. Through the rewards program, customers are free to redeem their points for donations to NGOs, financial services and products offered by Desjardins, show tickets, gift cards, and travel rewards. Discounts on car rentals are also offered.

  • Annual fee: $50
  • Interest rate: 9.90 percent

RBC Classic Low Rate Visa

This card by Visa is a great low-cost solution to reduce interest charges and transfer high-interest balances. The card goes with optional and complimentary benefits such as card registration service, commission-free travelers checks, and autopayment service. To apply, customers need to provide information such as annual income, employment status, social insurance number, etc.

  • Annual fee: $20
  • Interest on cash advances: 11.99 percent
  • Interest on purchases: 11.99 percent

CIBC Select VISA

This is a low-interest card with optional benefits such as emergency travel medical insurance, payment protector insurance, and others. Canadians who add authorized users are free to set spending limits. They can request up to three additional cards with no annual fee. Only applicants with a household income of at least $15,000 qualify.

  • Interest rate: 13.99 percent
  • Annual fee: $29

Option Five – Store Credit Cards

Department store credit cards usually have higher rates but offer benefits such as promos and exclusive discounts. It is easier to qualify with bad credit, and store cards allow customers to save on big-ticket, one-time, and daily purchases. If you have a thin credit file, this is a good choice to boost your rating, especially if you frequently shop at a certain department store.  Many stores offer ongoing perks, incentives, and rewards such as gift wrapping, deals, free alterations, and more.  There is an option to sign up for the store’s newsletter to get regular updates and information on promos and sales.

HBC Credit card

Hudson’s Bay offers a MasterCard with complimentary bonuses, rewards points, free shipping, and other perks. Every $1 spent on in-store purchases earns 2 points. Cardholders also get a 25 percent bonus on rewards points earned at other stores. They can be redeemed for air miles, Esso points, or HBC gift cards. There is an option to donate them to charities.

  • Annual fee: none
  • Interest rate: 29.9 percent
  • Grace period: 21 days or longer

Walmart Rewards™ MasterCard®

Walmart features a rewards credit card with plenty of added benefits such as pre-authorized payments, personalized checks, and free additional cards. There are optional and standard benefits such as balance protection plans and recurring bill payments. Cash advances are also available. Customers earn 1 percent in rewards on regular purchases and 1.25 percent on Walmart purchases.

  • Standard interest rate: 25.99 percent
  • Cash interest rate: 21.49 percent
  • Preferred rate: 19.89 percent
  • Grace period: 21 days
  • Annual fee: none

Canadian Tire Options® MasterCard®

This is a rewards card that allows consumers to earn Tire Money on regular purchases, participating gas bars and other retailers, and Canadian Tire in-store purchases. Customers earn 10X points on purchases at PartSource, Mark’s, Sport Chek, and Canadian Tire stores.  The card also features added benefits such as easier returns, flyer bonuses and contactless payments.

  • Interest rate: 19.99 percent
  • Annual fee: none

Canadian Tire offers a zero interest period of 12 months if you spend at least $200 in-store on mowers and tractors, wardrobes, appliances, auto service, wheels, tires, etc.

Conclusion

While consumers with a bad credit file and low score have more limited options, they are free to choose from low interest, prepaid, secured, department store, and guaranteed cards. Major Canadian banks, retailers, department stores, and credit card companies offer cards to borrowers with credit issues and poor and fair scores.