6 Best Credit Cards to Rebuild Credit in Canada for 2024
Aug 1, 2024Check out the best cards to rebuild your credit in Canada, according to NerdWallet’s analysis.
While you may need good or excellent credit scores to apply for a traditional credit card, secured cards and prepaid cards are less restrictive. Plus, when used responsibly, these cards can help rebuild your credit.
There are also cards specifically designed for newcomers to Canada. If you’ve just moved to the Great White North and want to rebuild the credit you had in a previous country, these cards can help.
Best credit cards to rebuild credit in Canada
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BACK TO TOPNerdWallet Canada selected the best cards to rebuild credit based on overall consumer value and their suitability for specific kinds of consumers.
Our evaluation is weighted by several factors, which depend on the card type. For unsecured credit cards: 50% rewards value, 25% intro offer, and 25% fees and interest. For secured cards: 50% features specific to secured credit cards, 30% fees and interest, 12% rewards and 8% intro offer. For prepaid cards: 60% features specific to prepaid cards, 15% fees, 15% rewards, and 10% intro offer
Rewards value considers earning rates, rewards structure, promotional rates and spending categories.
The intro offer considers the welcome bonus value, promotional interest rates, and any waived fees.
Fees and interest consider the annual fee, additional costs such as foreign transaction fees, and interest rates for purchases, balance transfers and cash advances.
Features specific to secured credit cards include minimum and maximum deposit, ability to upgrade to an unsecured credit card, credit checks and credit reporting.
Features specific to prepaid cards include minimum and maximum deposit, maximum reload amount in any 24-hour period, ATM access, insurance benefits, digital wallet compatibility, and more.
Only reloadable prepaid cards that are available online and secured credit cards with online applications were considered for this list. We only assessed cards available to consumers in multiple Canadian provinces and territories.
Types of credit cards for bad credit
For many people with bad credit, getting a credit card can be hard. Issuers look at your score to determine your eligibility and may not want to give you a card if your score is low. But you often need a line of credit to help rebuild it — a catch 22.
There are specific types of cards that can help in this situation:
Secured credit cards. This type of card uses assets instead of your credit score to guarantee funds. For example, an issuer may require a $2,000 security deposit before giving you a card. In most cases, your deposit is the same amount as your credit limit. So, if you put $2,000 down, you’d have a $2,000 credit limit. Your deposit would then be used to collect on unpaid balances if you failed to pay the bill. Some issuers may check your credit to determine how high or low your security deposit needs to be.
Prepaid cards typically don’t report your transactions to the credit bureaus, as you’re technically not borrowing any money. It’s your money, loaded onto the card, which you then use. This means the payments you make won’t impact your score. However, some card issuers, such as KOHO, offer credit-building programs you can add to your prepaid card. You’re essentially given a very small line of credit that gets paid back each month, helping to build your score.
Credit cards for newcomers. Even if you had great credit in your country of origin, you can’t bring it with you and will have to rebuild your credit here. Some banks offer credit cards specifically for newcomers. They don’t require the same level of credit history as other cards, allowing people with no to minimal credit to apply.
How to rebuild your credit in Canada
If your credit has taken a hit, don’t panic. You can safely rebuild your credit and restore your score to its former glory. If used responsibly, credit cards are one way to do this.
How long does negative information stay on your credit report?
In general, negative data, such as missed credit card payments, can live on your credit report for up to six years. Bankruptcies can stay on your report for up to seven years, depending on where you live.
When you apply for a credit card, the bank or financial institution runs your credit. They then use this information to determine your eligibility, credit limit and interest rate, among other things. Negative information can lower your score, which makes lenders wary of working with you. This can lead to declined applications or higher interest rates.
But it’s not all doom and gloom. By rebuilding a string of positive information, you can balance out the negative, until it finally drops off the report. This process may take some time, but a little effort can go a long way.
Factors that can influence your score
According to the Financial Consumer Agency of Canada, the following factors may have positive or negative impacts on your credit score:
Length of credit history in Canada.
Length of time each line of credit has been on your report.
Credit card balances you carry from month to month.
Regularly missed payments.
Amount of outstanding debt.
Total credit utilization.
Recent credit applications.
Types of credit, such as credit cards or mortgages.
Collection agency history.
Bankruptcies.
It’s wise to keep all of these factors in mind when rebuilding your credit. While a credit card can help boost your score when used responsibly, it may not garner the results you want if one or more of the above factors is dragging down your score.
How to use a credit card to rebuild credit
A credit card is a type of revolving credit, which means you can borrow up to a set amount (the credit limit), pay it back and then borrow it again. You can use this system to your advantage by showing lenders you are a responsible borrower and can repay loans in a consistent fashion.
5 tips for rebuilding your credit with a credit card
Get a credit card with a low credit limit. Keeping the limit low can help you avoid racking up large bills you can’t afford to pay.
Only use the card for manageable purchases you know you can afford. Think of this card as your path to rebuilding credit, not a payment tool. You’re only using it to show your creditworthiness, not to buy superfluous items.
Always pay your credit card bill on time and in full. While paying the minimum payment due technically has a positive impact on your score, you want to avoid accumulating debt. If you have a high percentage of debt compared to your credit limit, it can look bad to lenders.
Aim to use no more than 30% of your total credit limit each month. For example, if you only have one credit card with a limit of $1,000, try to use no more than $333 per month. This is the sweet spot for lenders. It shows you are using credit responsibly and not living beyond your means.
Set up automatic payments to help you stay on top of your bills. It’s all too easy to lose track of time or get too busy and forget to pay your credit card bill. Unfortunately, credit bureaus aren’t very forgiving about missed payments. With auto-pay, money is taken automatically from your bank account each month so you don’t have to worry about remembering to pay.
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