By Julien Brault, founder of MooseMoney.
The Canadian credit system often feels like an exclusive club where you need a membership just to apply for a membership. If your credit score is currently in the gutter or non-existent, the big banks usually won't even look at your application. However, the industry has shifted and the gatekeepers have lost their power. There are now 4 types of cards that any Canadian can easily get and that will allow you to order a Uber or book a plane ticket online like a normal person.
1. Prepaid Credit Cards
A prepaid credit card is not technically a credit card because you are spending your own money rather than borrowing. You load funds onto the card and spend until the balance runs out. There is no credit check, no approval process beyond basic identity verification, and no risk of accumulating debt.
The Neo Money Card, for example, is a no-fee prepaid Mastercard linked to a high-interest savings account and offers cash back at partner merchants. It works anywhere Mastercard is accepted, including for online purchases and international transactions.
However, prepaid cards have one critical limitation. Godyer from Neo Financial was direct about this trade-off. "If you have money and all you're lacking is the mechanism for being able to spend your money online, a prepaid card works for that, but it won't help you build your credit score," he noted.
2. Secured Credit Cards
A secured credit card requires you to provide a refundable cash deposit that typically sets your credit limit. If you deposit $500, you generally receive a $500 limit. The issuer holds your deposit as collateral, which reduces their risk and makes approval far easier than with a traditional unsecured card.
Unlike prepaid cards, secured cards will help you build your credit, since payment history is reported to Equifax and TransUnion. However, the downside is your security deposit remains out of your reach until you graduate from your secured card and cancel it: "With a secured card, you can't use the deposit to pay off the balance like you can with a prepaid card", summarized Richard Godyer, Chief Credit Risk Officer at Neo Financial. “You have to pay off the balance with some other money, but by doing so, you are building your credit"
The Neo Secured Mastercard, for example, requires a minimum deposit of $50 and offers cashback at over 10,000 partner locations. There are no fees for anyone keeping at least $5,000 in any Neo account, and the fee is $7.99 per month for those who don’t qualify. And while other credit card issuers only offer their worst credit cards as secured, at Neo, even our premium cards like the Neo World Mastercard and the Neo World Elite can be obtained as secured cards.
3. Mixed Secured Credit Cards
Most Canadians have never heard of mixed or partially secured credit cards, but they occupy a useful middle ground. With a mixed card, you put down a security deposit and the issuer extends additional credit on top of that deposit based on your profile. If you deposit $300 and the issuer grants you an extra $200 in unsecured credit, your total limit becomes $500.
Neo Financial's Godyer noted that very few issuers offer it. "Neo and Capital One, I believe, are the only players who offer mixed credit cards or partially secured cards. We might not be able to approve you for an unsecured card, but we might be able to offer you credit on top of your security deposit if you get a secured card with us," concluded Godyer.
A mixed card benefits applicants who have some creditworthiness but not enough to qualify for a fully unsecured product. The way to obtain a mixed secured credit card from Neo is simply to apply to any of our cards. If we can approve you for an unsecured credit card, we will offer you one on the spot. If not we will offer you either a secured or mixed secured cards. And even if you only qualify for a secured card, we might be able to turn your secured card into a mixed secured card after three months of usage.
4. Guaranteed Approval Credit Cards
The term "guaranteed approval" appears on several Canadian credit card products, but it's more a promise than an actual type of card. "A guaranteed approval is simply a thing that banks say to signal that they will definitely give you a card and, at Neo, we say our cards are guaranteed approval because we'll definitely give you a secure card if you can't qualify for an unsecured credit card," explained Richard Godyer, Chief Credit Risk Officer at Neo Financial.
In practice, guaranteed approval means you will receive some form of card, either secured or unsecured, as long as you meet basic eligibility requirements, which typically include being the age of majority in your province and being a Canadian resident.
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