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Best Credit Building Programs Canada

5 min read

Credit building products review

Credit works a lot like trust. It takes time to build, and any setbacks can require significant effort and time to repair. With household debt increasing (Canadians now owe an average of $1.71 for every dollar they earn!), building a strong credit history has never been more crucial.

If your credit is damaged, lenders will see you as a higher risk. Fortunately, there are several ways to start (or restart) building your credit history. However, traditional methods aren’t always effective, which is why many financial institutions have introduced new credit-building products. These products offer faster ways to improve credit in Canada.

Let’s explore some of the best credit-building programs in Canada from various financial institutions, like secured credit cards and credit builder loans, including KOHO’s very own Credit Building.

KOHO Signup Link

Credit builder loan

A credit-building loan in Canada is designed to help people with little or no credit history. It works differently from a regular loan. Instead of receiving the money upfront and paying it back over a set period, you make fixed payments to the lender first and receive the loan amount at the end of the loan term.

You don’t need a strong credit history to qualify for a credit-building loan, but you must have sufficient income to cover the payments. Here are some of the best credit-building loans available in Canada in 2024:

KOHO Credit Building

KOHO’s Credit Building tool is an easy and secure way to improve your credit history for just $5, $7, or $10 a month, depending on your account type. To start, you just open a KOHO account. Then, you can easily sign up for KOHO Credit Building through your account in the KOHO app.

After you provide some basic information, KOHO does a soft credit check and gives you a balance. Each month, KOHO reports this small balance as repayment history to Canada’s credit bureaus, helping to build your credit. You can even track changes to your credit history right in the KOHO app with your free credit score check.

Check out KOHO’s Credit Building benefits:

  • No hard credit check

  • No minimum deposit requirement

  • No application or approval

  • Affordable

  • Major credit bureau reporting

  • Free credit score checks

  • Payments are automated, so you’re less likely to miss a payment

  • You can cancel at any time without obligation

  • An average credit score increase of 22 points after just three months

Spring Financial – The Foundation

The Foundation credit builder program from Spring Financial offers guaranteed approval no matter what your credit score is. For only $55 every two weeks, Spring Financial reports your on-time payments to Equifax Canada and TransUnion Canada.

On top of improving your credit score, this credit-building program also helps you build your savings. In fact, more than half of each payment is saved in your account, totalling $750 over the initial 12-month term (with the option to extend for another six months).

Here are Spring Financial – The Foundation benefits:

  • Free credit score checks

  • No fee cancellation

  • $750 in savings after 12 months

  • You can use your savings at any time, even to make your Foundation payments

  • After completing The Foundation program, you are guaranteed access to the Evergreen Loan, which offers a $1,500 cash advance at an 18.99% interest rate.

Borrowell Credit Builder

Borrowell offers three types of credit-builder loans that last for a 3-year term, and the cost depends on which option you can safely afford. The Starter option costs $10 a month, the Plus option costs $30 a month, and the Pro option costs $50 a month. According to Borrowell, its Credit Builder users see an average credit score increase of 41 points within the first five months.

As you make your monthly payment of either $10, $30, or $50, Borrowell reports these on-time payments to Equifax Canada, a major credit bureau in Canada. However, any missed payments will also be reported, which can negatively affect your credit score. Fortunately, Borrowell’s Credit Builder automates your payments with a pre-authorized debit agreement to prevent missed payments.

At the end of your 3-year credit builder loan term, depending on the payment amount you choose, you’ll receive between $240 and $1,440.

Benefits of using Borrowell’s Credit Builder loan:

  • No hard credit check

  • You can choose between three payment options

  • Payments are automated, so you’re less likely to miss a payment

  • You can receive up to $1,440 back when your loan term is done

  • An average credit score increase of 41 points within the first five months

However, in order to qualify for the Borrowell Credit Builder loan, you must have at least six months of credit history. This means you need to build a credit history with another credit product first. You also need to have at least two credit accounts on file with Equifax.

Fairstone Credit Building

While not a traditional credit builder loan, Fairstone offers lower credit score requirements for their personal loans than other traditional lenders. This makes it easier for those with poor or fair credit to qualify for a personal loan from Fairstone. Just like with any type of loan, making payments on time every month to your personal loan will help you build credit.

Fairstone offers:

  • Secured personal loans ranging from $5,000 to $60,000 for 36 to 120-month terms

  • Unsecured personal loans ranging from $500 to $25,000 for six to 60-month terms

Benefits of a Fairstone personal loan:

  • You can access your money right away instead of at the end of the term

  • They allow loan co-signers

  • Offers autopay so you don’t miss a payment

  • You can insure your loan

  • You can earn up to $500 per year for referring a friend or family member

However, because it’s a personal loan and not a credit building loan, they do have a minimum credit score requirement of 550. You’ll also want to keep in mind that personal loans come with interest rates.

Secured credit card

When you have little or no credit, having a credit card can help you build or fix your credit, as long as you use your credit card responsibly. However, most credit cards require a credit history to qualify. If you don’t have a good credit history, your best option may be to look for a secured credit card.

Secured credit cards work like regular credit cards but require a deposit, which usually sets your credit limit. A secured credit card can be one of the best credit-building tools available. Here are some of the best credit cards for building credit in Canada in 2024:

KOHO Essentials Prepaid Mastercard®

The KOHO Essential Prepaid Mastercard® isn’t a secured credit card, but it’s still one of the best prepaid cards in Canada. Normally, a prepaid card won’t help build your credit, but you can subscribe to KOHO’s Credit Building option for $10 a month. This service helps to build a healthy credit score by reporting your payment history to both major credit bureaus, Equifax Canada and TransUnion Canada. The card is widely accepted, offers cash back, includes budgeting tools, and has lower foreign exchange fees.

Essentials gives you:

  • 1% cash back on groceries, transportation, and dining.

  • 5% interest on all the money you load onto your card.

  • 5% extra cash back at over 1,000 selected merchants.

Plus, with KOHO Essentials, you’ll get:

  • No annual fee

  • No interest rate

  • Instant e-transfers

  • Unlimited transactions

  • Free credit score checks

  • Lower foreign exchange fees

For more benefits, you can subscribe to the KOHO Extra plan for $9 a month. This plan offers 1.5% cash back on groceries, transportation, and dining and 0.25% cash back on all other purchases. You also earn 5% interest on your balance, up to 5% extra cashback at select merchants, and the credit-building option costs only $7.

The KOHO Everything plan, at $19 a month, provides even more perks, including 2% cash back on groceries, transportation, and dining. Plus, the credit-building option is priced at just $5 per month.

Neo Secured Credit

The Neo Secured Credit card is unique in Canada for being one of the only secured cards that offers cash back rewards. Plus, with a minimum security deposit of just $50 and guaranteed approval, it’s one of the easiest cards to get. Plus, it only costs $5 a month.

Its cash back offers include:

  • Up to 4% cash back on gas and groceries up to $6,000 per year

  • Up to 1% cash back on all other purchases up to $20,000 per year

  • An additional average of 5% cash back at select Neo partners

Other great features include the ability to adjust your credit limit whenever you want, a spending insights dashboard in their app, the ability to monitor your credit score, and an auto-pay feature to ensure you never miss a bill while building your credit.

Just be aware of the purchase interest rate. It starts at a standard 19.99% but can go up to 24.99% depending on your credit and where you live, so make sure to read the details of your contract.

Secured Tims® Mastercard

If you’re one of the many Canadians who indulge in a fresh cup of coffee every morning before work, this co-branded secured credit card might be right up your alley (or drive-thru!). The Secured Tims® Mastercard works seamlessly with the Tim Rewards program, letting you earn points from both your card purchases and the loyalty program, so you can maximize your rewards.

Plus, it only requires a minimum security deposit of $50 and comes with a $0 annual fee.

The earn rate is as follows:

  • 12 points per every $1 spent at Tim Hortons locations in Canada (when you scan for Tims Rewards)

  • 2 Points per every $1 spent on groceries, gas, EV charging, and transit (including taxis and rideshares)

  • 1 Point per every $4 spent on everything else

With the Secured Tims® Mastercard, you also get extended warranty protection (up to $1,000 per incident), purchase protection (for 90 days up to $1,000 per incident), and Mastercard zero liability. The interest rate starts at 20.99%, but it can go up to 25.99%.

Capital One Guaranteed Mastercard® or Guaranteed Secured Mastercard®

Capital One offers two guaranteed-approval credit cards: the Capital One Guaranteed Mastercard® and the Capital One Guaranteed Secured Mastercard®.

The Capital One Guaranteed Mastercard® is easy to qualify for, so many Canadians with bad credit can be approved for a regular credit card. However, if you don’t qualify for the regular card, don’t worry—you’ll likely be approved for the secured card option instead since approval is almost guaranteed if you meet a few basic requirements.

Both the Capital One Guaranteed and Guaranteed Secured Mastercard® have a $59 annual fee and a 21.9% interest rate. If you only qualify for the secured option, the minimum deposit is $75, and the maximum is $300, which will be your credit limit.

Both cards come with travel benefits, purchase assurance, and extended warranty protection. The travel benefits include:

  • Car rental collision/loss damage waiver

  • Common carrier travel accident insurance

  • Baggage delay

  • Travel assistance

  • Zero liability

Home Trust Secured Visa Card

Being a secured credit card, the Home Trust Secured Visa Card is known for its high approval rate. Almost everyone who applies and can provide the deposit gets approved, making it one of the best secured credit cards in Canada for building credit.

This card is simple and ideal for those who want to build their credit with a $0 annual fee. With a minimum deposit of $500, you can activate the card and use it almost anywhere. Home Trust regularly reports to both major credit bureaus (Equifax Canada and TransUnion Canada), helping to build your credit.

The card’s interest rate is 19.99%, which is standard, although some secured cards offer lower rates. You can reduce your interest rate to 14.90% by paying an annual fee of $59. Additionally, it has a lower-than-usual 2% foreign exchange fee for use abroad or online.

ATB Alberta Mastercard® - Secured (Alberta residents)

The ATB Alberta Mastercard® - Secured is perfect for Alberta residents looking to rebuild their credit. While it doesn’t offer any type of rewards program, it does offer up to 25% off car rentals at participating Avis® and Budget® locations when you pay with your ATB Alberta Mastercard® - Secured.

The ATB Alberta Mastercard® - Secured requires a $500 minimum deposit. It also has a $49 annual fee and a 19.99% or 24.90% interest rate.

Vancity enviro™ Secured Visa* Card (British Columbia residents)

The Vancity enviro™ Secured Visa* card is perfect for residents of British Columbia looking to rebuild their credit.

This secured credit card works a bit differently than others. First, you’ll need to open a Vancity TFSA or high-interest savings account and invest at least $500. Your investment acts as your security, and you’ll get a credit card with a limit equal to your investment. Plus, you’ll earn interest on the security amount since it’s invested.

Then, you can select any of Vancity’s enviro Visa credit card options for your secured card. It will look and work just like a regular credit card, offering the same benefits and Vancity Rewards points.

The Vancity enviro™ Secured Visa* card has an annual fee ranging from $0 to $395 and an interest rate of either 11.25% or 19.50%, depending on which card you choose for your secured credit card.

KOHO Signup Link

How can I build my credit fast in Canada?

The fastest way to build your credit score is to lower your credit utilization rate by paying off your credit card balances and making on-time payments. These are the two biggest factors affecting your credit score, so focusing on them will significantly help.

Making on-time payments is extremely important for payment history and credit scores. Every late or missed payment gets reported on your credit report, negatively affecting your credit score. This is why making your monthly payments on time, even if it’s just the minimum payment, is absolutely essential.

However, keep in mind that only making the minimum payments won’t lower your credit utilization. Minimum payments typically only pay interest and often don’t go toward your principal amount, meaning your balance stays the same. That’s why it’s important to pay more than the minimum whenever you can to help pay off your balance faster and lower your credit utilization.

While this may sound difficult, it’s likely easier than you think. You just need to come up with a manageable plan and stick to it. Luckily, there are several methods to help you pay down your debt. Here are a few options for you to consider:

The avalanche method

The avalanche method focuses on paying off the loan with the highest interest rate first. Once the highest-interest debt is paid off, you take the money you were using to pay off the first high-interest debt, apply it to the next highest-interest debt, and keep going until all your debts are paid. By targeting the most expensive loans first, you should end up paying less in interest over time.

While the avalanche method can save you money, if the debt with the highest interest is big, it might take a long time to pay off, which can be discouraging. Instead, you may want to consider the snowball method.

The snowball method

The snowball method involves paying off your smallest loan as quickly as possible. Once that debt is gone, you use the money you were paying on it to start paying off the next smallest debt, and then the third smallest debt, and so on. You keep doing this until all your debts are paid off. As you pay off each debt, the amount you can put toward the next one gets bigger, making it faster to pay off everything.

Paying off small debts quickly with the snowball method can feel more rewarding than the avalanche method and keep you motivated. If you like to see quick progress, the snowball method might be better for your debt management goals.

Debt consolidation

Debt consolidation means taking out a new loan or credit card to pay off your existing debts. By combining multiple debts into one, you might get better terms, like a lower interest rate, lower monthly payments, or both.

You can consolidate your debt in several ways, such as getting a personal loan, a new credit card with a high limit, or a home equity loan or line of credit. Then, you use the new loan to pay off your smaller debts. If you use a new credit card, you can transfer the balances from your old cards to the new one.

Besides possibly getting lower interest rates and smaller monthly payments, debt consolidation can also simplify your finances, giving you fewer bills and due dates to manage each month. This can be really helpful if you’re someone who often misses due dates, as you’ll now have less to keep track of.

How do credit-building programs help you build credit?

Now that you’ve learned how to lower your credit utilization ratio by paying down your debt let’s talk about how using credit-building programs can help you build your credit history even faster.

Your credit score reflects your credit history and helps lenders determine if you can repay debts. If you have no or low credit scores, lenders see you as a risk and are less likely to loan you money. Credit-building programs, like secured credit cards and credit builder loans, can help you build credit or even rebuild credit after bankruptcy by holding money as collateral and giving you a chance to improve your credit history.

When you’re building or rebuilding your credit, credit-building programs let you show that you can make regular, on-time payments. This is crucial because your payment history is the most important part of your credit score. By making payments on time, your credit score will improve. With a credit-builder loan, you make regular payments and prove you can handle credit responsibly.

However, credit-builder loans won’t help if you miss or make late payments. If you do, your lender will likely report it to the credit bureaus, which can lower your credit score significantly. For example, late payments show up on your credit report after 30 days, and they can stay there for up to six years.

Also, you must make sure that you’re still making your minimum payments on any other debt while making your credit-building payments. If you’re only making payments on your credit builder program and missing your other debt payments, your credit score will continue to drop.

Are there any other options for building credit?

Besides credit-builder programs, there are a few other ways to build credit if you have no or poor credit history. For example, you can become an authorized user on someone else’s credit card, have someone co-sign a loan with you, or get a cell phone.

Become an authorized user

Do you have a trustworthy parent or spouse with good credit? If so, ask if you can become an authorized user on their credit card. This means you’ll receive a card in your name that’s linked to your credit account and credit report.

As an authorized user, you can make purchases, but the primary cardholder is responsible for the bill. Their good credit habits can help improve your credit scores. Generally, there’s no credit check or application required to become an authorized user.

This way, you’ll benefit from their good credit practices, as well as your own, which can help build your credit history. However, any negative credit behaviour by either of you will affect both credit scores, so make sure to maintain good financial habits.

Have a co-signer

Getting a personal loan with bad credit can be tough. But if you need a personal loan where you can access the money right away, unlike with a credit-building loan, one option is to ask a family member or loved one with good credit to be a co-signer.

With a co-signer, the lender uses their credit score instead of yours, which can help you qualify for a loan that you might not get on your own. You might also get better loan terms this way. Lenders are more likely to approve a loan with a co-signer who has good credit because if you don’t repay the loan, the co-signer is responsible for the payments.

Get a cell phone

What some people may not know is that cellphone companies report to the credit bureaus, too, so paying your phone bill in full and on time also helps build your credit history. However, many providers do a credit check before giving you a monthly plan, so you might not qualify right away.

If you don’t qualify right away, use another method to start building your credit. Then, try applying for a phone plan again. Some providers might even offer you a plan without a credit history if you have a credit card. It’s a good idea to call around and see where you can qualify.

KOHO Signup Link

Common credit-building mistakes to avoid

By now, I’m sure you get the point that making your monthly payments on time every month is absolutely essential for building your credit. But besides not paying bills on time, here are a few other common credit score mistakes to watch out for:

Applying for too many new credit lines quickly

Having multiple types of credit accounts open can look good on your credit report. However, having multiple inquiries for new credit within a certain period of time can lower your score. It’s also a red flag for lenders when they check your credit report.

Carrying a balance

Carrying a balance from month to month and only making the minimum payment can negatively affect your score if your balance is a large percentage of your credit limit. Aim to keep your credit utilization rate (the amount of debt you’re carrying as a percentage of your overall credit limit) below 30% of your available limit across all accounts.

Closing old credit accounts

The length of time you’ve had credit accounts open affects your credit score. A long credit history looks great on your credit report. Therefore, closing an old account may shorten your credit history and temporarily lower your score. It can also increase your credit utilization ratio, which can hurt your score if you already have a lot of debt. If you have an old credit card that you’re currently paying off, it’s best to keep it open once you’ve finished paying it down.

What is a good credit score in Canada?

In Canada, credit scores are calculated using several factors, and they range from 300 to 900 to indicate how reliable you are at repaying debt. The higher your credit score, the more lenders trust you to pay back what you owe.

Generally, anything above 660 is considered a good credit score, but it’s ideal to be above 700. If your score is between 725 and 759, it’s likely considered very good. A score of 760 and above is generally seen as excellent. In Canada, the average credit score is around 680.

Having a good credit score makes it easier to get approved for financial products, like credit cards or a mortgage. It also helps you secure higher credit limits and lower interest rates, which can save you money in the long run. This is because it shows that you manage your finances well and pay your bills on time.

Various lenders use your credit score to decide if they will lend you money, how much they’ll lend, and what interest rate to charge. Landlords may check your credit score before letting you rent an apartment or house to ensure you have a good payment history. Even some employers may ask to check your credit before hiring you, with your permission.

Start building your credit today with KOHO

Are you looking for a safe way to start building credit? Consider KOHO’s Credit Building programs today! When you sign up, you get a special tradeline with no fees or interest; it’s designed just for building credit. You make a payment on this tradeline once a month, and it’s automated, so you’re less likely to miss a payment. By paying your bills on time each month, you can build a good credit history and improve your credit score.

KOHO’s program is easy and accessible. There are no initial deposits, no thorough credit checks, and no complex applications. With guaranteed approval, it’s easy for Canadians can focus on building their credit without incurring debt.

And that’s not all. KOHO also offers plans for spending and saving, high-interest saving accounts for all, and even great options to help you grow your business.

So don’t wait! Start building your credit with KOHO today!

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up to date account information!

Alyssa Leonard

Alyssa is a seasoned content writer with experience in the finance and insurance industries, known for producing high-quality, engaging, and informative content. Her expertise in these sectors allows her to deliver insights that resonate with both industry professionals and the general public.