The Pros and Cons of Secured Credit Cards (2024)

Secured credit cards are crucial tools for individuals who want to build their credit, are newcomers to Canada, and especially for borrowers with bad credit. They differ from unsecured credit cards that don't require a security deposit.

This article will examine how secured credit cards work, what they require, and their advantages and drawbacks. We'll also cover the Neo Secured Card and why it's among the best secured credit cards to build your credit.

How Does a Secured Credit Card Work?

A secured credit card is a type of credit card that requires a cash deposit that will serve as collateral or a guarantee for purchases you make using your credit card. This way, your card issuer has protection in the event that you default on your payments.

A secured credit card works just like any other credit card: You swipe it for purchases without exceeding your credit limit and subsequently pay your balance on time each month. If you miss a payment, you can't use your deposit to make the card payments, but your card issuer can take money from it to cover your dues.

Advantages of a Secured Credit Card

Can Rebuild Credit. Are secured credit cards good for building credit? Yes, they are. Your payment history is a vital factor in determining your credit score. A secured credit card can help you rebuild credit through the minimum payments you make every month. That's why making prompt monthly payments is very critical if you want to improve your credit rating.
Easier To Qualify For. Secured credit cards are backed by a cash deposit, so they're easier to qualify for. They also have more lenient requirements, which makes them more accessible to borrowers, such as those with limited credit history and haven't used credit often.
Can Upgrade Later. Some secured credit cards upgrade good borrowers to an unsecured card when they prove they can responsibly manage credit. As mentioned, maintaining timely payments and paying the minimum balance can improve your credit rating and make you eligible for an upgrade to an unsecured credit card.

Cons of a Secured Credit Card

Requires a Deposit. If you have bad credit or a limited credit history and need to establish good credit, you'll need to put up a cash deposit. This serves as an assurance to your card issuer if you fail to make payments on your credit card balance.
Higher Interest Rates. Secured credit cards often have higher interest rates, fees, processing or annual charges. This is because lenders expect high default rates from borrowers with lower credit scores.
Low Credit Limit. When you apply for a secured credit card, the lender will determine your credit limit based on the amount you put down as a security deposit. Depending on the consistency and promptness of your payments, the lender may increase your credit limit or transition you to an unsecured credit card.

Best Secured Credit Card in Canada

The Neo Secured Credit card is a cut above other cards of its type. It has no annual fees and only requires a low and easily accessible minimum security deposit of $50. Regardless of your credit score, you get instant approval when applying for this secured credit card, making it one of the best secured credit cards to build credit.

Furthermore, it comes with a cash back rewards program that earns you up to 5% on eligible purchases. Online application is also fast and can be completed in 5 minutes.

Neo Secured Credit is available in free and premium plans. The free version comes with basic money management tools, offers cashback at Neo partners, and up to 1% cashback on gas and groceries.

To enjoy better features and benefits, you can upgrade to the Premium service at $4.99 a month. It offers boosted cashback opportunities and up to 3% cashback on groceries and gas. It also comes with all features of the free version, credit score monitoring tools, and more.

The Neo Secured Credit card helps you build your credit while earning cashback rewards. You can use it like any other regular credit card at thousands of places with no monthly or annual fees.

You can get a $25 welcome bonus when you apply and are approved.

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