Secured Credit

November 25, 2013

Credit Card Fan

Individuals who have a poor credit rating search desperately for ways to re-establish their credit. The following are ways in which a person can borrow money if he or she has no credit.

  1. Find a co-signer for the loan. That co-signer would carry the risk of having to pay the loan if you default on payments.
  2. Take out a loan providing your assets as collateral. If you default on payments those assets would be seized.
  3. You can get a secured credit card from a major bank. This may be issued provided that you deposit upfront the same amount of security that you wish to borrow.

There are a few things to consider before applying for a secured credit card. If you have no credit rating, apply at least once, for a credit card. Meet with your bank manager to discuss your borrowing options.

If you and your bank manager decide on a secured credit card, you have the option of depositing money in securities such as GICs, RRSPs or term deposits. You can get a secured credit card with a limit equal to the amount invested in your security. You cannot remove the security and retain the credit.

If you do not make your payments on the credit card, the bank has the right to take the money from your security, for example out of your GIC.

This information was obtained from an article entitled Credit Cards For Those Who Cannot Get Credit which ran in the Financial Times May 15 to 21, 1993.

Be aware that you cannot "buy" yourself out of a bad credit rating. You must show the Credit Bureau that you are a good risk by paying your bills responsibly over time. Be wary of companies that offer you instant credit or guarantee credit cards as there are no short cuts to repairing your credit rating.