A credit card can be a powerful financial tool when used responsibly, and can also help build your credit score. But what if you don’t have sufficient credit yet, or have damaged it in the past, and can’t qualify for a credit card?
Fortunately, there are options available for those who can’t get a credit card on their own.
Co-Signed Credit Cards
Similar to a mortgage, some lenders will let an applicant use a co-signer in order to qualify for the card. The co-signer, who typically has good credit, is equally responsible for any debt owed to the card, and their credit score is also on the hook. Co-signed credit cards are slightly different than supplementary cards, which just allow you to access the credit of another cardholder (usually a parent and teen), and can be a good way for those with limited credit (typically students and newcomers to Canada) or damaged credit to get credit cards.
However, co-signed credit cards can be a deterrent for those trying to build their own credit scores; because the loan is based on their co-signer’s credit, they aren’t actually improving their own score through use of the card. This can be an issue when the cardholder applies for a mortgage, auto loan, or other form of debt.
Supplementary Credit Cards
A second option is to add someone as an authorized user on your credit card. Being an authorized user offers the best of both worlds: you’ll receive your very own supplementary credit card and be able to make purchases on your own. However, it’s important for the primary cardholder to keep in mind that the authorized user is not responsible for the use of the credit card account (choose your authorized users wisely). Being a supplementary cardholder will also not improve your own credit score over time.
Secured Credit Cards
For those who are keen to build their own credit scores, and have no or poor credit, a secured credit card is worth looking into. With a secured credit card, you pay an amount as a deposit up front in exchange for credit. This amount stays on the balance of your card while it’s in use. Your credit limit is based off of the amount of your deposit (sometimes it’s slightly higher). The only way to get your deposit back is to pay off the full balance of your credit card and close the account.
Check out our pick for the best secured credit card in Canada>
How Sharing Credit Cards Affects Your Credit
Before you co-sign a credit card, it’s important to understand the risks. When you co-sign for someone, you’re responsible for the purchases of the other person. If the person you’re co-signing for pays late or doesn’t pay at all, you’re on the hook. Not only could you be responsible for paying the outstanding balance on purchase you didn’t even make, your credit score could be lowered as a result.
While you may see co-signing on a credit card as a favour to a loved one, make sure you trust the person you’re co-signing for. For example, if you’re co-signing for your child, take the time to educate them about the benefits and pitfalls of credit. The last thing you want is for your child to rack up a ton of charges he or she can’t afford to pay for, leaving you on the hook.