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A security deposit for a secured credit card is money you place with the issuer, and it becomes your credit limit. It is fully refundable, and it opens access to credit even with no history, from as little as $50 with some Canadian issuers.
A well-used credit card opens the door to flights, hotel stays and much more, earned through points on planned spending.
Getting one is the hard part. Your payment habits matter as much as the card itself, to avoid a negative impact on your credit score.
Getting approved can be tough if you have a bad or no credit history. That is where the security deposit comes in. In this article, we will show you how a security deposit can eventually open up your pathway to establish, build or rebuild your credit and enjoy what is out there.
A security deposit is a refundable amount of money held by a credit card issuer that acts as collateral for a secured credit card. Even if you have a bad or no credit history, the lender is assured and protected with this security deposit if you stop making payments. This is similar to a renter giving a security deposit before signing a lease with a landlord.
Security deposits also act as your credit limit. Knowing this, you should be very mindful of the amount of money you use as your security deposit, as any late or missed payments will incur additional interest and, most importantly, hurt your chances of building strong payment history.
At first glance, secured and unsecured cards work the same way. You use them for purchases, interest applies if you carry a balance, and you get a statement.
Three differences set them apart:
Every issuer sets its own requirements, but applying for a secured credit card almost always follows the same steps:
Some issuers let you pay once you are approved instead. Make sure the funds are there when the withdrawal happens: an underfunded account gets the application declined.
While this is a rather personal question and highly dependent on your current situation, here are some things to consider:
Your credit card issuer will provide a minimum and maximum deposit amount. Suppose you think a large limit will hurt you rather than help you. In that case, you can consider placing the minimum amount and gradually increasing it as you show the ability to make consistent payments over time.
Who currently has some great secured credit cards in Canada? Here are our top 2 picks based on the minimum security deposit, flexibility, and fees.
Minimum security deposit: $500
Annual fee: 0$
Great for: Newcomers to Canada
The Home Trust Secured Visa Card is the perfect no annual fee secured credit card to help you build your credit up. Ideal for newcomers to Canada with no established credit history, the card comes with a minimum security deposit of $500 and a maximum of $10,000. The card is very standard, not offering much in terms of rewards and holding an interest rate of 19.99%. Home Trust also offers a second card, the Home Trust Secured Visa Low Rate, which brings the rate down to 14.90% for a $59 annual fee.
If you want to learn more about this card, visit the Home trust website for a detailed breakdown!
Minimum security deposit: $50
Annual fee: $0, plus a Build fee of $7.99 per month
Great for: Rewards earners and credit building
No annual fee, a security deposit starting at $50 and a real credit-building tool: the Neo Secured World Mastercard ticks several boxes. It makes credit accessible regardless of your history, with no minimum income required, and your deposit sets your limit dollar for dollar. The all-in-one app lets you track your spending, automate payments and adjust your limit. The trade-off is the Build fee of $7.99 per month, waived if you keep $5,000 or more on deposit with Neo, and a purchase interest rate of 19.99%.
Neo now offers two tiers of secured card, World and World Elite. For a detailed comparison of fees, cashback rates and travel perks between the two, check out our Neo Secured World vs Secured World Elite comparison.
Getting your security deposit back is the rule, not the exception. Two situations return your money:
Conversion is not offered everywhere: check with your issuer before counting on it.
When it is, keep the card rather than cancelling it. The age of your accounts feeds into your credit score, and closing a card can lower it.
A secured credit card is an excellent option to establish, build or rebuild your credit. To improve your credit as quickly as possible, you should consistently do the following:
The length it takes to build your credit varies based on your situation, but you can rest assured that these habits will help you along your credit journey. Will you be placing a security deposit anytime soon?
Here are frequently asked questions in the milesopedia community about this topic.
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