Secured credit card: what is it?

Posted on 25 January 2023

Written by Catherine Hutt

Perhaps this is your first step into the realm of credit cards, or perhaps you may be looking to be smarter with your money management. Maybe you need to rebuild your credit score. No matter which scenario you are in, a secured credit card may be a good move for you. In this article, we explain all you need to know about taking out a secured credit card, and what it can do for you. We will explore the different options available, and the criteria you should consider when taking out a secured credit card. We will also cover some of our recommended secured credit cards on the market. Without further ado, here is your guide to secured credit cards.

What is a secured credit card?

In Canada, a secured credit card is a form of revolving credit. When taking out a secured credit card, you will put forward a deposit in order to open your account. Generally speaking, deposits for a secured credit card will range from $50 to $10,000, depending on your lender. Your credit limit will usually then equate to the value of the deposit you have put down. This deposit is required in order to reduce the risk to the lender should you not make your credit card payments. It is a great way of establishing or rebuilding your credit score as it is much easier to secure than any other type of credit card. If you can use your secured credit card responsibly and make your credit card payments on time and in full each month, they can improve your credit score. Once your credit score reaches a certain threshold, you will be eligible for a traditional (unsecured) credit card, where you are not first required to pay a deposit upfront. When you eventually come to close your account, your lender will pay back your security deposit in full.

How does a secured credit card work?

A secured credit card is reliant on the deposit that the card holder places down upon opening the account. This money is essentially used as collateral for the credit card. Should you fail to make your credit card payments, the lender has this deposit to fall back on, making it a far less risky way for them to lend to you. The amount of deposit you put down on the card subsequently becomes your credit limit. The primary purpose of a secured credit card is to enable individuals with a poor credit score to borrow. As lenders will report on the performance of secured credit cards to Canada’s two primary credit bureaus – Equifax and TransUnion – they are a great way to help you improve your credit score when used appropriately over time. Of course, if you do not make your credit card payments in full or after they are due, you could lose your deposit, and your credit score could deteriorate. You should also try to keep your balance low compared to your credit limit where possible.

What are the pros and cons of secured credit cards?

As with any financial product, there are pros and cons to having a secured credit card:

Pros of a secured credit card

  • They can help you to repair a bad credit score over time
  • If you lack a credit history, they can help you to build one
  • You will get your security deposit back in full once you close your account
  • Some secured credit cards offer a rewards program
  • Getting approval for a secured credit card is relatively straightforward
  • There is a simple eligibility criteria, making them easy to secure

Cons of a secured credit card

  • You need to have the funds to put down an initial deposit
  • You cannot get your deposit back until you close your account
  • You may have to pay an annual and monthly fee
  • It is likely you will have a higher interest rate than a regular unsecured credit card
  • There is no guarantee you will get an upgrade to an unsecured credit card

How can you get a secured credit card in Canada?

A secured credit card is a great way to begin building or repairing your credit history. But how do you go about getting a secured credit card in Canada? Firstly, you will want to do your research into lenders offering secured credit cards. We have rounded up a few below. Next, choose the option that you like the most, and you will want to work on your secured credit card application. Once you have chosen your lender, you will need to get your deposit ready – typically, this is equivalent to the value of your credit limit so consider what you will need to spend each month, and how much you can realistically afford. You will then need to submit your deposit along with your application form. Once approved, you will receive your secured credit card via mail. Make sure to use it sensibly, set yourself limits, and make your credit card payments in full and on time each month.

Which banks in Canada offer secured credit cards?

Most financial institutions in Canada – both big and small – will offer some kind of secured credit card. Below, we have listed some of the most popular secured credit cards in Canada.

Secured Credit CardKey FeaturesRates & Fees
TD Cash Secured Credit Card– 1% cash back on all eligible purchases
– Security deposit between $300 and $5,000
– Opportunity to graduate to an unsecured credit card
– $29 annual fee
– 26.74% interest rate
– 28.99% interest on cash advances

Neo Secured Credit Card
– No annual or overlimit fees
– Increase your credit limit whenever you need
– Auto-payment feature to help you not miss payments
– Cash back opportunities
– $0 annual fee
– 19.99% – 26.99% interest rate
– 22.99% – 28.99% interest on cash advances
Home Trust Secured Visa   – Rated the #1 secured credit card for 2022 by creditcardGenius
– No annual fee
– Security deposit between $500 to $10,000
– Not available in Quebec
– $0 annual fee
– 19.99% interest rate
– Option for 14.9% interest rate with $59 annual fee
Capital One Guaranteed Secured Mastercard    – Guaranteed credit card approval
– Security deposit of $75 or $300
– Travel insurance included
– $59 annual fee
– 19.8% interest rate
– 21.9% interest on cash advances
Plastk Secured Credit Card– 25 day interest free grace period on purchases
– 3 day grace period on cash advance
– Cash back benefits (250 points = $1)
– Use points for merchandise, travel, events, and more
– Sign up bonus of 5,000 points and 0% interest for 3 months
– $48 annual fee
– $6 monthly fee
– 17.99% interest rate

Got more questions on getting a secured credit card or on the best way to rebuild your credit score? Book a free consultation with one of the experienced Licensed Insolvency Trustees at Spergel. We have helped 100,000 Canadians on their journey to financial freedom, and we are here to help you. Reach out today – you owe it to yourself.


Catherine Hutt

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