Canadians and credit

Your credit determines how easily you can qualify for some of the most importance loans in life, such as a mortgage. Banks and other lenders carefully scrutinize a borrower’s credit history before approving housing, student, business and car loans. Therefore, the better your credit is, the more likely you will be able to get a loan that you really need.

However, debt and other factors can ruin credit for many people. As you continue to borrow loans and spend money, it’s not uncommon for an adult Canadian consumer to experience periods of bad credit.  However, bad credit can seriously compromise an individual’s financial security. For example, loans obtained with bad credit often have sky-high interest rates that push the borrower even more into debt.  Therefore, it is in your best interest to start improving bad credit without delay.

Also, there are Canadians with no credit at all, which can be just as bad as having bad credit. Young people, like those who have just graduated from college, and those have never owned a credit card before, most likely do not have a credit history to speak of. People with no credit are perceived as unreliable borrowers by lenders. Canadians with no credit can run into as much trouble as people with bad credit. Most creditors are reluctant to provide loans of any kind if there’s no credit history to evaluate.

How Can Secured Credit Cards Help?

Having good credit history means that you can borrow and spend money wisely. Banks and financial institutions highly value these qualities when providing loans at reasonable interest rates. Therefore, if you hope to take out a mortgage or a business loan in the future, you should start improving your credit standing right away.

Your credit improves when you start reducing overall debt. However, it’s also important to improve your credibility as a borrower. That means you should demonstrate your ability to borrow and spend money responsibly. You can achieve both these goals with a secured credit card.

Regular credit cards are offered to customers only by evaluating credit history. Banks offer secured credit cards to consumers who fail the credit evaluation, but can offer collateral in the form on a cash deposit: The limits of the secured credit card vary depending on the size of the deposit offered.

Secured credit cards function just like regular credit cards with a few exceptions. Other than the collateral involved, the repayment plan may slightly differ. Secured credit cards are offered for a fixed period of time, and the cardholder is expected to repay the full amount due by the time the card expires. Because there is no monthly fee required, secured credit cards are a good option to pay down other debts.

For customers with no credit history, secured cards are a good starting point. Customers who responsibly use secured credit cards may automatically be qualified for a regular credit card.

Banks that issue secured credit cards on most occasions report the cardholder’s repayment ability to major credit bureaus. Cardholders who pay their bills on time and follow all the rules can easily improve their credit standing with a secured credit card:

Precautions to Mind

Some secured credit cards do not offer a grace period for the cardholder to repay the money borrowed in full. This usually means that there will be interest charged on each and every transaction conducted using the card. This interest can add up to a hefty sum that only adds to existing debt problems. Therefore, only purchase secured credit cards with reasonable grace periods.

A secured credit card can only improve your credit standing if it reports your spending behavior to a credit bureau. Otherwise, your ability repay will be left unnoticed and your credit standing will remain the same.


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