Contrary to popular belief, if you have poor credit (or simply no credit at all) you can still use a credit card. In fact, it may benefit you to do so: not only can responsibly using a credit card help you to rebuild your credit score, but you can gain perks like travel insurance, purchase protections and even earn cash back and rewards. With this in mind, we’ve rounded up the best credit cards (and prepaid credit cards) for bad credit in Canada for May 2024, so you can get back on track.
1
KOHO Essential Prepaid Mastercard
Welcome Bonus
30-day free trial to any KOHO subscription plans
Annual Fee
$4* per month and $48 per year for an Essential Plan.
Regular APR
N/A
2
Neo Secured Credit
Welcome Bonus
Up to 15% cash back on your first purchase at participating partners
Annual Fee
$0
Regular APR
19.99% – 29.99%
When determining a rating for individual credit cards, the Forbes Advisor Canada editorial team factors in an exhaustive list of data points. With cash back, the scoring model used takes into account factors such as, but not limited to, cash back rates and categories, fees, welcome bonus, and other rewards and features. Keep in mind what may be best for some people might not be right for you. Conduct informed research before deciding which cards will best help you achieve your financial goals.
A prepaid Mastercard that allows you to earn interest and cash back.
Rewards: 1% cash back on groceries, transportation and eating and drinking and earn up to 5% cash back at select retail partners.
Welcome Offer: 30-day free trial to any KOHO subscription plans
Annual Fee: $4* per month and $48 per year for an Essential Plan.
Other Benefits and Drawbacks: The KOHO Essential Prepaid Mastercard also pays 5% interest on the balance of your card and allows for direct deposits from your employer. However, cardholders need to watch withdrawal limitations.
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The BMO Travel Prepaid Mastercard is for individuals with bad credit who are looking for a convenient payment method to travel with.
Rewards: None
Welcome Offer: None
Annual Fee: $6.96
Other Benefits and Drawbacks: The BMO Travel Prepaid Mastercard is accepted worldwide and the card is also safer and more convenient than cash. Cardholders should, however, be aware that this card charges foreign exchange fees.
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The easy approval process allows you to build credit faster.
Rewards: None
Welcome Offer: None
Annual Fee: $59
Other Benefits and Drawbacks: This option has a lower interest rate, but does come with an annual fee.
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A no-annual-fee secured credit card with an easy approval process.
Rewards: None
Welcome Offer: None
Annual Fee: $0
Other Benefits and Drawbacks: The no-fee option is a huge advantage. However, keep in mind the interest rate for this option is 19.99%.
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A secured credit card with cash back rewards and a low minimum deposit requirement.
Rewards: Cash back
Welcome Offer: 15% cash back on the first purchase with a Neo partner.
Annual Fee: $0
Other Benefits and Drawbacks: The low minimum deposit requirement ($50) makes it a more accessible option for individuals trying to build their credit. It’s also one of the few cards for bad credit that earns cash back.
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A secured card option for Alberta residents who are looking to build their credit.
Rewards: None
Welcome Offer: None
Annual Fee: $49
Other Benefits and Drawbacks: Cardholders can save 25% on car rentals with participating Avis and Budget businesses.
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The Capital One Guaranteed Mastercard® guarantees approval as long as you meet a few simple requirements.
Rewards: None
Welcome Offer: None
Annual Fee: $59
Other Benefits and Drawbacks: The Capital One Guaranteed Mastercard comes with several benefits when it comes to everyday purchases as well as travel. Cardholders do need to be mindful of the high interest rates.
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A secured credit card with everyday and travel benefits.
Rewards: None
Welcome Offer: None
Annual Fee: $59
Other Benefits and Drawbacks: The Capital One Guaranteed Secured Mastercard® is a great option for those with bad credit to start building credit with a deposit as little as $75. However, the maximum deposit is a very low $300.
Original credit card data research and analysis conducted by Debra Toews and Tia Duncombe.
A credit score is an number ranging from 300 and 900 that indicates your credit worthiness. The higher your score, the more potential lenders know you can be relied upon to pay back your debt.
Your credit score is calculated based on a number of factors. These include your payment history, the length of your credit history, the number of inquiries into your credit, and how much credit you use compared to how much you have available to you.
A bad credit score is one in the range of 300 to 560. Having a score in that range will make qualifying for unsecured credit in any form difficult. If you have a credit score in that range and are looking to qualify for credit, you will likely need to put up collateral, which turns an unsecured loan into a secured one and allows the lender to keep the collateral if you default, or you will need the help of a co-signer with a better credit score who will be equally responsible for paying back any outstanding debt if you default and are unable to make payments on your own. Even if you have a fair credit score, which is only slightly better than poor and in the range of 560 to 659, you may still be denied credit from a lender.
What is a bad credit score? In Canada, if your score ranges between 300 and 574 it is considered to be bad. There can be a number of reasons why someone may have a bad credit score. Some of the most common reasons are:
In order to improve (and maintain) a good credit score, there are a number of things to be mindful of, such as:
Paying your balance on time shows that you can be relied upon to make payments and contributes to a positive credit history.
The lower your balance, the better you look to creditors. If this can’t be done, always make your minimum payment on time, at the very least.
Having a long credit history can raise your score. Keep your older accounts open, even if you don’t use them regularly.
Having a diverse range of accounts shows you can successfully manage multiple lines of credit at once. If you have a line of credit, car loan and credit card, this would be more favourable than having three credit cards.
Hard inquiries into your credit, like when you apply for a new loan or credit card, can lower your credit score.
Although hard inquiries can affect your credit, keeping on top of credit score isn’t always a bad thing. It may also help to keep on top of your accounts and open lines of credit, which is a way to be aware if you’ve been a target of identity theft.
All credit cards have different requirements for credit scores. High-end cards often require a high score as well as income requirements, but there are cards available to those with very bad credit scores, too.
There are a number of services available to help you check your credit score, such as:
If you have bad credit, there’s no reason you can’t qualify for a credit card that will help you begin to rebuild it. In fact, there are a section of credit cards tailored to help you budget, build credit and gain access to the benefits of a conventional credit card.
Secured credit cards function just like traditional credit cards, however they require a cash deposit to secure the card. This deposit provides security for the borrower and can be used to cover your debt if you do not pay your bill.
Often, a financial institution will upgrade you to an unsecured version of your credit card once your credit has improved.
Prepaid credit cards function like a credit card, but instead of using a line of credit, you use your own funds that you load onto the card. You can then use your card as if it were a conventional credit card, sometimes even earning cash back and points on spending.
Unsecured credit cards are essentially a traditional credit card, meaning you are approved for a limit and it functions as a line of credit. These types of cards come with interest rates, since you are borrowing the funds from a lender and paying back the loan.
There may be other reasons that make it hard for you to qualify for a credit card beyond having bad credit. If you have no credit history because you are new to Canada or are a student, for example, it can be hard to get a credit card.
These cards are a good option for getting a credit card and building your credit history.
Store credit cards are typically co-branded credit cards offered by retailers, such as Walmart, Canadian Tire or Costco. You can apply in-store or online and these cards are typically easier to qualify for. Not only can you use this card for everyday purchases, but depending on the card, you’ll get benefits such as cash back when shopping at the affiliated store. Here’s our list of the best store credit cards.
Student credit cards are geared for students who may have little or no credit history, low income and few assets. There may be perks, such as no annual fee, but these cards may have a higher interest rate and/or a lower credit limit. Also, you typically need to be registered as a full-time student at an eligible post-secondary institution. However, once you’ve demonstrated your ability to manage your debt (and built a credit history), you can upgrade to a conventional credit card with more benefits. Here’s our list of the best credit cards for students.
While these cards aren’t specifically labelled “for newcomers” (like the student cards), the Big Banks offer cards with immigrants in mind, with softer requirements for an established credit history. The trade-off may be a lower credit limit than conventional cards. You may need to be an existing customer with the bank to get a credit card, so start there when shopping around for options. Here’s our list of the best credit cards for newcomers to Canada.
Very few Canadian financial institutions accept credit established in a foreign country as a way to qualify for loans or other mechanisms of borrowing. Therefore, it’s important to quickly establish your credit in Canada as a newcomer. The “Big Six” banks do offer banking packages for newcomers that may have no credit history or very little credit history. Included in that package is usually a secured credit card or a credit card that can be qualified for with a low credit score. This is because a credit score is one of the fastest and easiest ways to establish credit when you are new to the country, as long as you pay the bill consistently and on time.
If you’re trying to determine the best credit card to start building your credit history, it can be helpful to consider the following:
Annual fee: Credit cards come with different annual fees, ranging from $0 to several hundred dollars. While the fees are often offset by perks, such as points or cash back, it’s still an amount that needs to be paid each year. If you’re on a tight budget, a no-fee or low-fee credit card may be best.
Welcome bonus: Some cards offer a welcome bonus when signing up for that card. It can be a good incentive to choose that card, but only if the bonus suits your needs and if you’re able to meet the spending requirements, if there are any.
Approval process: Once you get a credit card, you can start building your credit history, but the challenge is getting that first card. Credit cards with an instant approval help you get started sooner.
Interest rate: It’s a good idea to pay off your credit card each month to help boost your credit score, but if you think you’ll have to carry a balance, be mindful of your card’s APR. Interest rates range from 14.90% to almost 26%, which can make paying down your debt even harder.
Perks and benefits: All things being equal, choose the card that offers perks that suit your lifestyle and spending habits.
Just because you have bad credit, it doesn’t mean you can’t apply for a credit card. What’s more, it’s a similar process for when it comes time to apply for a conventional credit card. Here are some tips to make the process easier:
Check your credit history: Once you know your credit score, you can apply for a suitable card. You can also monitor your credit history over time to see how it improves.
Pick the best card for you: The best credit card is one that suits your needs, including your budget and spending habits. Consider factors such as the interest rate, perks, welcome bonus and deposit, if a secured card. Also be mindful of the consequences of a missed payment as you want this card to help you build good credit, not contribute to a lower credit score.
Apply: The easiest way to apply for a credit card is online and some cards offer instant approval. If you’re applying for a store credit card, you may find the in-store application the fastest. If you have a good relationship with your bank, another option is to apply at the branch. Regardless, ensure you meet the eligibility requirements before you begin. And only apply for one card at a time as multiple credit applications will only hurt your credit score more.
Applying for a credit card does affect your credit score negatively, but the impact is often over blown. Since the credit card issuer does a hard inquiry on your credit every time you apply for a credit card or any kind of loan, regardless of whether you’re approved or not, your credit score will drop a few points. Though this is not the end of the world because as long as you pay your outstanding creditors on time and do not mis a payment, your credit score should be able to recover from this slight drop relatively quickly.
Having multiple credit cards can affect your credit score positively or negatively depending on how they are used. More credit of any kind increases your available credit limit, which will reduce your overall credit utilization and raise your credit score as long as much more credit is available to you than the amount your actually using. However, if you have more available credit but most of it is being used and you are consistently brushing up against your overall credit limit, your credit score is likely to go down. In both cases, you need to make payments consistently and on time and it is recommended you pay more than the minimum as much as you can.
Yes. Your options may be limited, but t as you can see from this list there are credit cards catered to people out there for people with bad credit.
Typically, any negative information will stay on your credit report for six years.
A credit score under 575 is considered to be poor or bad credit by a lender.
Depending on your financial situation, and the reason for your bad credit, it can take as little as 30 to 45 days to see a change in your credit score. But if you have little to no credit history, it can take three to six months to establish your credit score. If you have bad credit due to a bankruptcy or a history of missed payments, it can take years to reestablish good credit.
The Home Trust Secured Visa card is one of the easiest cards to be approved for if you have bad credit.
A credit score of 500 is considered poor or very poor, depending on the credit bureau. You will not be able to qualify for a conventional credit card, but you can potentially qualify for a card specifically geared towards customers with bad credit. These cards are typically prepaid cards or secured cards, therefore reducing the risk to the lender while giving you the opportunity to build (or rebuild) your credit history.
The most common credit cards for people with bad credit are secured credit cards or prepaid credit cards. If you are a student or a newcomer to Canada, there are also credit cards suited to your particular situation.
