What Is a Secured Credit Card and Does It Build Credit?

A secured credit card is a credit card that requires a security deposit before you can use it. It works much like a regular credit card after that.

A secured card can help build your credit if the issuer reports your account activity to the credit bureaus.

KOHO Credit Builder

KOHO Credit Builder is designed to help Canadians establish or build their credit history through consistent monthly payments, without relying on a traditional credit card.

With KOHO Credit Builder, you can:

• +74 points average credit score increase seen using our credit building tools*

• Get approved without a hard credit check or minimum deposit

• Pay no interest on the line of credit

• Track your credit score and credit report directly in the KOHO app

• Build your credit history with monthly payments reported to the credit bureaus

How Does a Secured Credit Card Work?

You provide the card issuer with a refundable security deposit. Your credit limit is usually based on the amount you deposit.

For example, you may deposit $500 and receive a $500 credit limit.

The deposit does not normally replace your monthly payments. You still need to repay the purchases you make with the card.

Does a Secured Credit Card Build Credit?

Yes.

A secured credit card can help you establish or rebuild credit when the issuer reports the account to the credit bureaus.

Making your payments on time can help establish a positive payment history. Missing payments can have the opposite effect. Payment history is an important factor in your credit score.

Before applying, confirm that the card issuer reports your payment activity to Equifax or TransUnion.

Who Is a Secured Credit Card For?

A secured card can be useful if you:

• Have no credit history

• Have a low credit score

• Are rebuilding your credit

• Have difficulty getting approved for an unsecured card

• Are new to Canada and need to establish Canadian credit

Secured credit cards are specifically identified as an option for people with no credit history or bad credit.

Secured Credit Card vs. Prepaid Card

A secured credit card and a prepaid card are not the same thing.

With a secured credit card, you are borrowing against a credit limit. You receive a bill and need to repay what you borrowed.

With a prepaid card, you spend money you have already loaded onto the card. Most prepaid cards do not build credit because there is no borrowing activity to report.

How Can You Build Credit With a Secured Card?

Use the card for purchases you can afford. Pay your bill on time each month.

It can also help to keep your balance low compared with your available credit. Avoid using most of your credit limit simply because it is available.

A secured credit card can be a useful starting point if you cannot qualify for a traditional card. The key is using it consistently and making your payments on time.