If you want the best mortgage rate, you’ll need to have a high credit score. The current best 5-year fixed rate of 2.74% is easy to get if you have a credit score higher than 760, but at lower scores you’ll run into higher rates.
The best way to build credit is to make all your monthly payments in full and on time. There are some small hacks that you can do to boost your credit score a little bit, but the only way to ensure your credit is always high is to have a long history of always making your payments.
That’s because over 1/3rd of your score is determined by how often you pay on time. Another 1/3rd is determined by your credit utilization, and the remaining 1/3rd is divided between the length of your credit accounts, the types of credit you have, and any credit inquiries you have made.
If you don’t have a history of making payments, your credit score will be low – or maybe even non-existent! You need at least a few months of data to be given a credit score at all.
On the other hand, if your score is low because of missed payments, a past consumer proposal, or bankruptcy, you can still improve your score by making on-time payments. The hard part is getting approved for credit in the first place.
Whether you have low credit or no credit, lenders won’t be likely to approve you for a mortgage, loan, or line of credit – and if they do, it will be at high interest. So how can you expect to improve your score if it’s expensive or impossible to get new credit?
By getting a credit builder credit card, you can avoid paying high interest fees and approval is a snap! That’s why we put together this list of the best credit builder cards in Canada, so you know which ones you can and should get approved for.
The top spot on this list goes to the Refresh Financial Secured Credit Card. Not only does it have an incredibly low annual fee of only $12.95, but you can get approved without a credit check.
The reason they’re able to guarantee approval without a credit check is because it’s a secured credit card. Most credit cards are unsecured, meaning that you aren’t risking any of your own property/money to borrow from the lender. A mortgage is an example of a secured loan – if you stop making payments, the bank has the ability to sell your home to get their money back.
Instead of physical property, secured credit cards are secured against a cash deposit that you make when you open the card. Your credit limit is the amount of money you put down, and when you cancel the card, you get your deposit returned.
Unlike a prepaid credit card, secured credit cards work exactly the same as unsecured ones. Funds are not taken from your deposit except in extreme delinquency. In other words, your deposit is not a pre-payment for your spending. Instead, your deposit becomes how much you can spend on your card each month. You’ll receive a credit card statement that tells you how much you have to pay by the payment date. When you pay on time, you won’t pay any interest. If you don’t pay by the payment date, you will start accruing interest on the balance. Your deposit won’t be affected.
So it’s very important that you pay your monthly bill on time. The whole point of the Refresh card is to refresh your credit (as the name implies). You don’t want to waste the opportunity by lowering your score and paying interest on top of it.
What really sets Refresh Financial apart from competitors is its financial education program. Everyone that gets approved for a Refresh product gets free financial education. Why is that so great?
Without knowing how to fix your credit or adjust your behaviour, it’s extremely difficult to avoid make the same mistakes again. By giving free financial education, Refresh is setting you up for future success. Hopefully you won’t need to use a secured credit again!
BMO has one of the most attractive student banking offerings around.
SPC is Canada’s largest student discount network. Even I was a member back when I was in high school and university. Since students are basically always on a tight budget, an extra 10 – 15% off clothing, food, and entertainment is nothing to scoff at.
But the savings from SPC are just one part of what makes the BMO SPC Mastercard so good. Since BMO knows that only students will be applying for the SPC card, it’s easier to get approved as a student. The strong 1% cashback on all purchases is much higher than the standard 0.5% at other institutions for student cards. You can also choose to get Air Miles instead of cashback if you want to save points for travel.
In addition to the card, you can get a free BMO student bank account, which comes with nice perks like unlimited Interac e-Transfers® and free SPC membership.
A downside of this card is that you need proof of enrolment in a post-secondary institution to get approved. If you’re not currently in college or university, you won’t be able to pick up this card.
Capital One isn’t as big in Canada as it is in the States, but they still have great credit card offerings.
One such offering for people with no or bad credit is the Guaranteed Mastercard, which is almost exactly how it sounds.
Most people will qualify for this unsecured credit card. However, if you don’t qualify for it, they’ll instead qualify you for the secured version. The guaranteed approval is between both of the cards, not necessarily the unsecured version.
That being said, the fact that you can get this card without a security deposit and without being a student is great for people who don’t have the money for a deposit and aren’t in school anymore.
The reason it isn’t above the Refresh Financial Secured Credit Card is because of its substantially higher annual fee of $79. It actually has a lower interest rate than Refresh’s card of just 14.9% for purchases, but you should always avoid paying interest on your credit cards.
Something that all of these cards have in common is poor or non-existent rewards earnings – but that’s not the point of these cards. Rewards are not the reason you should get a credit card when you don’t have any credit history, or are recovering from bruised credit. Points and cashback can tempt you to overspend, which can lead to missed payments and high-interest debt.
If you’re applying for these cards, you already don’t have amazing credit. Don’t make it worse for yourself. Let your credit rebuild by making payments in full and on time and practice good financial sense, and soon you won’t have any problems getting cards with better rewards, as well as loans, lines of credit, and mortgages.
Using a credit card responsibly for a long time keep your score healthy. It doesn’t matter if it’s secured or a student card so long as you make timely payments. Now go and improve your score so you can get the best mortgage rates!